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11
votes
3answers
321 views

What are the recent advancements in building a unified theory of bounded rationality?

It seems that bounded rationality models focus on explaining a particular psychological bias, in a very specific way. In particular, its seems that the state of the art consensus is that one size does ...
11
votes
2answers
1k views

What is the difference between “aggregation” and a “representative agent?”

What is the difference between "aggregation" and a "representative agent?" I'm sorry if I'm not entirely clear on this question, but that's why I ask. It seems to me as if a representative agent is ...
11
votes
1answer
205 views

Is there a folk theorem for repeated games on networks?

Games on networks have been studied extensively, however, I was not able to find a folk theorem for games on networks. Is there one or can it be derived from an already existing folk theorem? With ...
11
votes
2answers
215 views

Why plug deficits with bonds rather than printing money?

The UK is running a budget deficit £107 billion a year. Inflation is currently running at 1%. Given these facts, why do they plug the gap by selling debt rather than just creating the money to cover ...
11
votes
3answers
766 views

Understanding the construction of stochastic processes

I've seen stochastic processes modeled/constructed in the following way. Consider the probability space $(\Omega, \mathcal F, Pr)$ and let $\mathbb S$ be the (measurable) transformation $\...
11
votes
2answers
605 views

Effect of a permanent increase in government expenditure in an open economy?

In Krugman & Obstfeld's International Economics, 8e, Chapter 16, an involved argument is given showing that a permanent fiscal expansion will not affect output even in the short run. It seems to ...
11
votes
4answers
1k views

Are There Giffen Inputs?

I am studying for my candidacy exams and I came across this question on a previous exam. The question is in the TFD (True, False, Debatable) section of the exam. The claim is: There are no Giffen ...
11
votes
2answers
511 views

Is there a solution to the Joker's game in The Dark Knight?

In the final battle in the movie, the Dark Knight (2008), the Joker has rigged two ferries carrying people out of Manhattan Gotham to explode. One ferry carries mostly civilians with a substantial ...
11
votes
1answer
236 views

How does Google price the items on Google Play?

I am a fledgling computer science researcher working in intersection of economics and computation. Please excuse me if this question seems out of place to the administrator. I am currently studying ...
11
votes
1answer
404 views

Is elasticity of substitution between goods empirically constant?

In New Keynesian models, we use a lot of CES assumption, usually Dixit-Stiglitz, to develop an economic model. Is CES, constant elasticity of substitution between goods, empirically (approximately) ...
11
votes
1answer
250 views

What are the economic impacts of different professions?

Every dollar a research worker earns makes the economy \$5 better off and every dollar a finance worker makes costs the economy \$0.60 So Reddit Economics yesterday posited and later retracted the ...
11
votes
2answers
387 views

Real option effect of uncertainty - irreversiblity vs fixed cost

There is a growing literature (e.g. Bloom, 2009) studying negative macroeconomic impacts of heightened uncertainty. One channel through which uncertainty can discourage economic activity, and ...
11
votes
1answer
358 views

Neo Keynesian Modelling and the Lucas Critique

Some people from the more extreme microfoundations/internal consistency camp keep bashing the Neo Keynesian model for the Calvo pricing being not micro founded and hence the whole model not being ...
10
votes
3answers
1k views

Is Marx considered an important classical economist?

In a post on the politics stack exchange, I came across the following description of how Marxism fits into the history of economic thought: Most professional economists consider Marx' work on ...
10
votes
5answers
17k views

When do supply and demand curves shift?

Let's assume that the price of apples has risen and that the quantity of apples sold during the last couple of weeks has decreased. From that, we can infer that the supply curve must've shifted to the ...
10
votes
5answers
11k views

Help understanding Lagrangian multipliers?

I am trying to understand Lagrangian multipliers and using an example problem I found online. Problem Set Up: Consider a consumer with utility function $u(x,y) = x^{\alpha} y^{1-\alpha}$, where $\...
10
votes
3answers
2k views

How is it possible that all currency exchange rates are fixed w.r.t. to each other?

I wondered if it would be beneficial to exchange a currency through one or more "in-between" currencies. For example: instead of trading Russian Ruble (RUB) to Euro's (EUR), one would trade from RUB ...
10
votes
5answers
803 views

What is the evidence that econometrics has empirical value?

Economies are extremely complex systems with many variables, not to mention the fact that they emerge from the interactions of complex beings. I agree that economies have certain underlying principles,...
10
votes
2answers
149 views

Schumpeterian Business Cycles

The basic idea of Schumpeterian Business Cycles is that new technologies require creative destruction but will yield positive growth. These two opposing forces have impacts onto the real economy at ...
10
votes
6answers
3k views

Which are the different Schools of Economic Thought?

It would be great to have a brief but comprehensive list of current (e.g. Austrian) and defunct (e.g Mercantilism) schools of thought in Economics. I think an ideal answer would include: the defining ...
10
votes
3answers
769 views

Game theory for showing interest and availability when dating

The more cynical (or perhaps realistic) of us would argue that there's a fair amount of game theory going on in the dating game. For example a classic ploy is 'Don't ring for three days, because you ...
10
votes
3answers
633 views

In the US, do high wages in regions like New York and California offset the high cost of living?

It's well understood that the cost of living in New York City vastly exceeds the cost of living in, say, rural Louisiana. It is also well understood that wages in New York City vastly exceed those in ...
10
votes
3answers
3k views

Why do low-budget films charge the same amount at the box office as super-high budget films?

In most occurrences, lower production costs translate into lower sales costs. Obviously there are other factors that influence price, including perceived value (affected by advertising), monopolies, ...
10
votes
2answers
10k views

Solow Model: Steady State v Balanced Growth Path

Okay, so I'm having real problems distinguishing between the Steady State concept and the balanced growth path in this model: $$ Y = K^\beta (AL)^{1-\beta} $$ I have been asked to derive the steady ...
10
votes
2answers
7k views

What is a substitute/complement in terms of mixed partial derivatives?

I am trying to understand how substitutability relates to mixed partial derivatives. I thought the change in marginal utility with respect to a change in the amount of $x$ would correspond to $$\frac{\...
10
votes
3answers
1k views

Money in the animal kingdom

Animals living in packs must have ways to decide how to distribute their goods among the pack members. Just like prices can appear in an exchange economy, prices could appear in pack economy. Though ...
10
votes
2answers
25k views

Marshallian Demand for Cobb-Douglas

When trying maximize the utility having a cobb-douglas utility function $u=x_1^ax_2^b$, with $a+b = 1$, I found the following formulas (Wikipedia: Marshallian Demand): $x_1 = \frac{am}{p_1}\\ x_2 = \...
10
votes
3answers
17k views

What is the definition of “First Best”, “Second Best”, etc. in contract theory?

What is the definition of "First Best", "Second Best", etc. in contract theory? Especially, what is the difference between "First Best" in contract theory and "ex-post efficient" in mechanism design?
10
votes
3answers
628 views

Impact of auction systems that allow 'sniping'

I'm a bit perplexed that eBay has auctions that have a fixed time ending, and so winners are often determined by who can 'snipe' the auction, by putting in the winning bid at the last possible ...
10
votes
5answers
1k views

What are the arguments against the rational expectations hypothesis?

I believe the rational expectations hypothesis says that agents in a model bear expectations that are the same as mathematical expectations. Under what circumstances does this hypothesis become ...
10
votes
3answers
2k views

Open access datasets for teaching IV regression

I am looking for a dataset to show (to a group of engineers) how the instrumental variables technique is used in econometric practice. I could always make up my own data, but I think it might be ...
10
votes
2answers
665 views

OLS bias in demand estimation: the bias always underestimate the demand's elasticity?

Some papers argue that OLS can produce less bias than IV estimation depending on the quality of your instruments. Suppose we consider a demand estimation equation. Suppose the demand elasticity is ...
10
votes
3answers
455 views

Nobel prize for empirical work

Did any recipients of the economics Nobel prize receive their prize for work that was primarily or substantially empirical (rather than theoretical) in nature?
10
votes
1answer
1k views

Wouldn't abolition of cash give rise to a substitute currency?

Some countries (e.g. Sweden and Denmark) plan to abolish physical cash in the future and restrict the use of cash to electronical deposits. One of the reasons for this is to prevent hoarding / boost ...
10
votes
2answers
2k views

What is the Gross Domestic Product (GDP)?

I suppose GDP is supposed to create a measure of a country's wealth/welfare, something easily indexable. But how exactly is it composed? And is its composition disputed? How good is it at measuring a ...
10
votes
3answers
2k views

Is it possible to have a modern economy without a central bank?

Many mainstream economists say that such thing is impossible. Is there some specific reason why the financial system needs a central bank? In this video http://m.youtube.com/watch?v=BcuAOdXD0Go, ...
10
votes
3answers
11k views

What is an example of a utility function where one good is inferior?

Say the consumer has a standard convex, monotonic preference over Apples and Bananas. (Update: I'd like the preference to be as 'standard' as possible. So ideally we have diminishing MRS everywhere ...
10
votes
3answers
890 views

What is the calculable effect of counterfeiting on an economy?

I'm curious whether one can numerically calculate the effect that counterfeiting has on an economy. As I understand it, counterfeiting essentially amounts to theft of the wealth of everybody holding ...
10
votes
2answers
802 views

Simulating Real Business Cycle

Basically I need to replicate Hartley's 'A User's Guide to Solving Real Business Cycle Models' (http://www.econ.ucdavis.edu/faculty/kdsalyer/LECTURES/Ecn235a/Linearization/ugfinal.pdf). Specifically, ...
10
votes
2answers
311 views

Are there any states that don't have debt?

I've not been able to find any states that don't have debt to other states. This, to me at least, seems really strange. Are there any nation states that are not in debt to other states, if so which ...
10
votes
1answer
507 views

Is it possible to derive indifference curves given marshallian demand function?

In a two good world, will a marshallian demand function the likes of D(p,m) where p is the price of one good and m the income yield a utility function or ...
10
votes
2answers
5k views

What is the purpose of measuring GNP?

I know that the GDP (the value of all final goods and services produced within a country during a given period of time) is useful for determining the productivity of a nation, the size of the nation's ...
10
votes
3answers
1k views

Why is the derivative used to represent marginal cost instead of the difference?

Marginal cost is defined as "the change in the total cost that arises when the quantity produced is incremented by one unit." And given a total cost function $C(q)$ that's differentiable, the marginal ...
10
votes
3answers
4k views

Log-linearization of Euler equation with an expectation term

There are a few online resources available to help with log-linearization (e.g., here or here). However, log-linearization where an expectation is involved is a little tricky because the log can't ...
10
votes
2answers
584 views

Can the Machina Paradox be solved by expanding the choice set?

In another question, the Machina paradox is mentioned as a possible counterexample to the expected utility model: Adding to the list of paradoxes, consider Machina's paradox. It is described in Mas-...
10
votes
2answers
4k views

Difference-in-differences in 2SLS regression

Usually when we do a difference-in-differences estimation, we do it in a OLS reduced form as follows: $$ Y_{it}=\alpha After_t+\gamma Treatment_i+\delta After*Treatment_{i,t}+X_{it}\beta+\epsilon_{i,...
10
votes
1answer
255 views

Price dispersion in online retail

There are a number of online booksellers that are popular in India right now. The prices they charge for the same book often differ by as much as 10% (See this price comparison site to check http://...
10
votes
1answer
380 views

Situations where revelation principle may not hold

Revelation principle is a powerful statement regarding Bayesian Nash equilibrium. However it may not hold always, as where players do not fully know their preferences, or when preference elicitation ...
10
votes
1answer
222 views

Has the assumption that individuals' tastes do not change over time been rigorously challenged?

In their seminal paper De Gustibus non est Disputandum, Stigler and Becker (1977) surveyed four classes of phenomena widely believed to be inconsistent with the stability of tastes: addiction, ...
10
votes
1answer
201 views

Why do stock exchanges not operate at a fixed frequency?

Would this not be more fair towards traders who don't trade at high frequency? And would it not be possible to distribute this fixed frequency to other exchanges, modulo relativity? The reason I'm ...

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