Evidence shows that (i) people overweight low probabilities and underweight high probabilities, but (ii) ignore events of extremely low probability and treat extremely high probability events as certain. The main alternative decision theories, rank dependent utility (RDU) and cumulative prospect...

In a recent, 58 page, paper, Hashimzade, Myles and Tran-Nam (2009) .New Approaches to the Economics of Tax Evasion.survey alternative approaches to tax evasion. Their central conclusion is, in their own words (p. 56): .What they [the non-expected utility models] do not do is change the...

Many diverse problems in economics can only be reasonably explained by assuming that people have social preferences, i.e., in addition to their own payoffs they are altruistic towards those who are poorer and envious towards those who are richer. How do people with social preferences choose...

The Becker proposition (BP) is one of the founding pillars of the modern literature on Law and Economics. It states that it is optimal to impose the severest possible punishment (to maintain effective deterrence) at the lowest possible probability (to economize on enforcement costs). The BP is...

We focus on four stylized facts of behavior under risk. Decision makers: (1) Overweight low probabilities and underweight high probabilities. (2) Ignore events of extremely low probability and treat extremely high probability events as certain. (3) Buy inadequate insurance for very low...

The recent experience with low inflation has reopened interest in the liquidity trap; which occurs when the nominal interest rate reaches its zero lower bound. To reduce the real interest rate, and to stimulate the economy, the modern literature highlights the role of high inflationary...

A new perspective is provided on a puzzle that has emerged from the empirical lit- erature suggesting that government-independent central banks provide a `free lunch': lower in°ation is apparently achieved at no cost in terms of greater output variance. We assess the various explanations...