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Jel Classification:D81 

Working Paper
Extended Loan Terms and Auto Loan Default Risk

A salient feature of the $1.2 trillion auto-loan market is the extension of loan maturity terms in recentyears. Using a large, national sample of auto loans from the entire auto market, we find that the default rates on six- and seven-year loans are multiple times that of shorter five-year term loans. Most of the default risk difference is due to borrower risks associated with longer-term loans, as those longer-term auto borrowers are more credit and liquidity constrained. We also find borrowers’ loan-term choice to be endogenous and that the endogeneity bias is substantial in conventional ...
Working Papers , Paper 20-18

Working Paper
Implications of Labor Market Frictions for Risk Aversion and Risk Premia

A flexible labor margin allows households to absorb shocks to asset values with changes in hours worked as well as changes in consumption. This ability to absorb shocks along both margins can greatly alter the household?s attitudes toward risk, as shown in Swanson (2012). The present paper analyzes how frictional labor markets affect that analysis. Risk aversion is higher: 1) in recessions, 2) in countries with more frictional labor markets, and 3) for households that have more difficulty finding a job. These predictions are consistent with empirical evidence from a variety of sources. ...
Working Paper Series , Paper 2013-30

Report
Preferences and biases in educational choices and labor market expectations: shrinking the black box of gender

Standard observed characteristics explain only part of the differences between men and women in education choices and labor market trajectories. Using an experiment to derive students' levels of overconfidence, and preferences for competitiveness and risk, this paper investigates whether these behavioral biases and preferences explain gender differences in college major choices and expected future earnings. In a sample of high-ability undergraduates, we find that competitiveness and overconfidence, but not risk aversion, are systematically related with expectations about future earnings: ...
Staff Reports , Paper 627

Working Paper
Mechanics of Linear Quadratic Gaussian Rational Inattention Tracking Problems

This paper presents a general framework for constructing and solving the multivariate static linear quadratic Gaussian (LQG) rational inattention tracking problem. We interpret the nature of the solution and the implied action of the agent, and we construct representations that formalize how the agent processes data. We apply this infrastructure to the rational inattention price-setting problem, confirming the result that a conditional response to economics shocks is possible, but casting doubt on a common assumption made in the literature. We show that multiple equilibria and a social cost ...
Finance and Economics Discussion Series , Paper 2017-109

Report
Risk Preferences at the Time of COVID-19: An Experiment with Professional Traders and Students

We study whether the COVID-19 pandemic has impacted risk preferences, comparing the results of experiments conducted before and during the outbreak. In each experiment, we elicit risk preferences from two sample groups: professional traders and undergraduate students. We find that, on average, risk preferences have remained constant for both pools of participants. Our results suggest that the increases in risk premia observed during the pandemic are not due to changes in risk appetite; rather, they are solely due to a change in beliefs by market participants. The findings of our paper support ...
Staff Reports , Paper 927

Report
Anxiety in the face of risk

We model an ?anxious? agent as one who is more risk averse with respect to imminent risks than with respect to distant risks. Based on a utility function that captures individual subjects? behavior in experiments, we provide a tractable theory relaxing the restriction of constant risk aversion across horizons and show that it generates rich implications. We first apply the model to insurance markets and explain the high premia for short-horizon insurance. Then, we show that costly delegated portfolio management, investment advice, and withdrawal fees emerge as endogenous features and ...
Staff Reports , Paper 610

Working Paper
Rational Inattention via Ignorance Equivalence

We present a novel approach to finite Rational Inattention (RI) models based on the ignorance equivalent, a fictitious action with state-dependent payoffs that effectively summarizes the optimal learning and conditional choices. The ignorance equivalent allows us to recast the RI problem as a standard expected utility maximization over an augmented choice set called the learning-proof menu, yielding new insights regarding the behavioral implications of RI, in particular as new actions are added to the menu. Our geometric approach is also well suited to numerical methods, outperforming ...
Working Papers , Paper 20-24

Report
Intended college attendance: evidence from an experiment on college returns and costs

Despite a robust college premium, college attendance rates in the United States have remained stagnant and exhibit a substantial socioeconomic gradient. We focus on information gaps?specifically, incomplete information about college benefits and costs?as a potential explanation for these patterns. For this purpose, we conduct an information experiment about college returns and costs embedded within a representative survey of U.S. household heads. We show that, at the baseline, perceptions of college costs and benefits are severely and systematically biased: 75 percent of our respondents ...
Staff Reports , Paper 739

Working Paper
Geometric Methods for Finite Rational Inattention

We present a geometric approach to the finite Rational Inattention (RI) model, recasting it as a convex optimization problem with reduced dimensionality that is well-suited to numerical methods. We provide an algorithm that outperforms existing RI computation techniques in terms of both speed and accuracy. We also introduce methods to quantify the impact of numerical inaccuracy on the behavioral predictions and to produce robust predictions regarding the most frequently implemented actions.
Working Papers , Paper 21-30

Working Paper
Rational Inattention via Ignorance Equivalence

We introduce the concept of the ignorance equivalent to effectively summarize the payoff possibilities in a finite Rational Inattention problem. The ignorance equivalent is a unique fictitious action that is weakly preferable to all existing learning strategies and yet generates no new profitable learning opportunities when added to the menu of choices. We fully characterize the relationship between the ignorance equivalent and the optimal learning strategies. Agents with heterogeneous priors self-select their own ignorance equivalent, which gives rise to an expected-utility analogue of the ...
Working Papers , Paper 21-29

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Zafar, Basit 6 items

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