Attending college seems to be a profitable and affordable investment in the US. Nevertheless, a number of academically talented young people still hesitate to attend college. This puzzle motivates this paper to test for whether college education is a risky investment. To measure the riskiness of...

Within the expected-utility framework, the only explanation for risk aversion is that the utility function for wealth is concave: A person has lower marginal utility for additional wealth when she is wealthy than when she is poor. This paper provides a theorem showing that expected-utility...

This paper provides a general framework for pricing of real options in continuous time for wide classes of payoff streams that are functions of Levy processes. As applications, we calculate the option values of multi-stage investment/disinvestment problems (sequences of embedded options, which...

This paper explores the implications of investors’ everyday mild feelings for aggregate asset returns. To this end, it introduces a novel class of state dependent preferences - happiness maintenance preferences - into the standard Mehra and Prescott (1985) economy by allowing investors’...

Schumpeter maintained that oscillations of macroeconomic variables are only the "secondary wave" of business cycles, a reflex of more fundamental "primary waves" at the microeconomic level caused by the innovative activity of entrepreneurs. Uniting Schumpeter's concern for innovation with...

Ideal economics? A “non-ideal” economics approach has been proposed, which considers the possibility of arrangement infringements. It gives promises for both solving fundamental problems of economic theory and creation of new directions and fields of research. The approach application in...

In a laboratory experiment, subjects played ten two-person 3x3 constant sum games and stated beliefs about the frequencies of play by their opponents. Contrary to previous experimental evidence, game-theoretical predictions work well: 80% of actions coincided with Nash equilibrium, subjects were...

We examine a logical decision problem, the "Monty Hall Dilemma," in which a large portion of sophisticated subjects insist on an apparently wrong solution. Although a substantial literature examines the structure of this problem, we argue that the extant analyses have not recognized the...

In this paper we extend the results of recent studies on the existence of equilibrium in finite dimensional asset markets for both bounded and unbounded economies. We do not assume that the individual's preferences are complete or transitive. Our existence theorems for asset markets allow for...

This paper extends Svensson and Woodford’s (2003) partial information framework by allowing the private agents to achieve robustness against incomplete information about the structure of the economy by distorting their expectations in a particular direction. It shows how a linear rational...