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Studies of human memory indicate that features of an event evoke memories of prior associated contextual states, which in turn become associated with the current event's features. This retrieved-context mechanism allows the remote past to influence the present, even as agents gradually update their beliefs about their environment. We apply a version of retrieved-context theory, drawn from the literature on human memory, to explain three types of evidence in the financial economics literature: the role of early life experience in shaping investment choices, occurrence of financial crises, and the effect of fear on asset allocation. These applications suggest a recasting of neoclassical rational expectations in terms of beliefs as governed by principles of human memory. [ABSTRACT FROM AUTHOR]

A new and rapidly growing econometric literature is making advances in the problem of using machine learning methods for causal inference questions. Yet, the empirical economics literature has not started to fully exploit the strengths of these modern methods. We revisit influential empirical studies with causal machine learning methods aiming to connect the econometric theory on these methods with empirical economics. We focus on the double machine learning, causal forest, and generic machine learning methods, in the context of both average and heterogeneous treatment effects. We illustrate the implementation of these methods in a variety of settings and highlight the relevance and value added relative to traditional methods used in the original studies. [ABSTRACT FROM AUTHOR]

Only one in seven of the world's population have ever migrated, despite the enormous gains in income possible through international and internal movement. I examine the evidence for different explanations given in the economics literature for this lack of movement and their implications for policy. Incorrect information about the gains to migrating, liquidity constraints that prevent poor people paying the costs of moving, and high costs of movement arising from both physical transportation costs and policy barriers all inhibit movement and offer scope for policy efforts to inform, provide credit, and lower moving costs. However, the economics literature has paid less attention to the fears people have when faced with the uncertainty of moving to a new place, and to the reasons behind the tears they shed when moving. While these tears reveal the attachment people have to particular places, this attachment is not fixed, but itself changes with migration experiences. Psychological factors such as a bias toward the status quo and the inability to picture what one is giving up by not migrating can result in people not moving, even when they would benefit from movement and are not constrained by finances or policy barriers from doing so. This suggests new avenues for policy interventions that can help individuals better visualize the opportunity costs of not moving, alleviate their uncertainties, and help shift their default behavior from not migrating. [ABSTRACT FROM AUTHOR]

The papers in this Special Issue contribute to a rich literature on the economics of charitable giving. They address several novel questions covering a wide range of open issues in the philanthropic realm. For example, many of our papers study what works and what does not work for a charitable organization to boost giving money or time. Other papers examine fundraising mechanisms and possible underlying motives shaping donors' giving behaviour. Our papers combine multiple methodologies, such as theory, observational data as well as laboratory and field experiments, to address these issues. Taken together, our Special Issue offers novel insights and approaches in the field of charitable giving that will be of interest to academics and policymakers alike. [ABSTRACT FROM AUTHOR]

This paper addresses the limitations of Modern Money Theory (MMT) as a guide to development policy. We explore two main questions on this topic: whether policies championed by MMT advocates (i) ought to be implemented in low- and middle-income economies and (ii) can be implemented. In relation to the first question, we argue that the MMT literature mischaracterises the essence of the development challenge for low- and middle-income economies. Our argument is that the chief long-run growth challenge faced by developing countries concerns structural transformation rather than general aggregate demand insufficiency. We use several formal representations of the consumption–investment trade-off in growth theory, found in the Harrod–Domar growth model, the Feldman–Mahalanobis model and Kalecki's 1963 growth model to illustrate this point. Concerning the second question, we argue that even if MMT had the correct diagnosis of the principal growth challenge faced by developing countries, its chief policy recommendations would likely be counter-productive if implemented outside of select advanced economies. We draw from the international economics literature on currency hierarchy and exchange rate volatility to illustrate this point. [ABSTRACT FROM AUTHOR]

This short Comment looks at Gary Pisano's 2017 article in this Journal and its contribution to the literature on dynamic capabilities. The Comment focuses particularly on choice, learning, uncertainty and search issues along with some implications for the entrepreneur and the nature of the firm. [ABSTRACT FROM AUTHOR]

Selecting the optimal Markowitz portfolio depends on estimating the covariance matrix of the returns of N assets from T periods of historical data. Problematically, N is typically of the same order as T , which makes the sample covariance matrix estimator perform poorly, both empirically and theoretically. While various other general-purpose covariance matrix estimators have been introduced in the financial economics and statistics literature for dealing with the high dimensionality of this problem, we here propose an estimator that exploits the fact that assets are typically positively dependent. This is achieved by imposing that the joint distribution of returns be multivariate totally positive of order 2 (⁠ MTP 2 ⁠). This constraint on the covariance matrix not only enforces positive dependence among the assets but also regularizes the covariance matrix, leading to desirable statistical properties such as sparsity. Based on stock market data spanning 30 years, we show that estimating the covariance matrix under MTP 2 outperforms previous state-of-the-art methods including shrinkage estimators and factor models. [ABSTRACT FROM AUTHOR]

Most of the literature on the economics of catastrophes assumes that such events cause a reduction in the stream of consumption, as opposed to widespread fatalities. Here we show how to incorporate death in a model of catastrophe avoidance, and how a catastrophic loss of life can be expressed as a welfare-equivalent drop in consumption. We examine how potential fatalities affect the policy interdependence of catastrophic events and 'willingness to pay' (WTP) to avoid them. Using estimates of the 'value of a statistical life' (VSL), we find the WTP to avoid major pandemics, and show that it is large (10% or more of annual consumption) and partly driven by the risk of macroeconomic contractions. Likewise, the risk of pandemics significantly increases the WTP to reduce consumption risk. Our work links the VSL and consumption disaster literatures. [ABSTRACT FROM AUTHOR]

The paper presents the economic literature on gender bias, illustrating the underpinnings in the psychology of bias and stereotyping; the incorporation of these insights into current theoretical and empirical research in economics; and the literature on methods to contrast bias, presenting evidence (where it exists) of their effectiveness. The second part of the paper presents results of an experiment in revealing unconscious bias. [ABSTRACT FROM AUTHOR]

Economic analysis assumes that consumer behaviour can be rationalised by a utility function. Previous research has shown that some consistency of choices with economic rationality can be captured by permanent cognitive ability. No other known study however has examined how a temporary load in subjects' working memory can affect economic rationality. Using two controlled laboratory experiments, we exogenously vary cognitive load by asking subjects to memorise a number while they undertake an induced budget allocation task (Choi et al. 2007a , b). Using a number of manipulation checks, we verify that cognitive load has adverse effects on subjects' performance in reasoning tasks. However, we find no effect in any of the goodness-of-fit measures that measure consistency of subjects' choices with the Generalized Axiom of Revealed Preference (GARP), despite having a sample size large enough to detect even small differences between treatments with 80% power. We also find no effect on first-order stochastic dominance and risk preferences. Our finding suggests that economic rationality can be attained even when subjects are placed under temporary working memory load, despite the fact that the load has adverse effects in reasoning tasks. [ABSTRACT FROM AUTHOR]

Jensen and Meckling's 1976 definition of the firm as a legal fiction which serves as a nexus for contracts between individuals sits well with the Coasean narrative on the firm while at the same time being at odds with it. Available interviews with Jensen shed little light on the origins and meaning of this unusual definition. The article shows how the definition captured, and was a response to, the American socio-political context of the early and mid-1970s, and traces how Jensen and Meckling employed it once they themselves became immersed in the public debate about corporate responsibility and regulation in the late 1970s and early 1980s. It also considers Jensen and Meckling's place in the literature on the economics of corporate law developed mostly in the 1980s. [ABSTRACT FROM AUTHOR]

A large behavioral economics literature is concerned with cognitive biases in individual and group decisions, including sequential decisions. These studies often find a negative path-dependency consistent with mechanisms such as the gambler's fallacy or contrast effects. We provide the first test for such biases in group decision making using observational data. Specifically, we study more than 27,000 verdicts adjudicated sequentially by over 900 juries for high-stake criminal cases at London's Old Bailey Criminal Court in the 18th and 19th centuries. Using jury fixed effects to account for heterogeneity in their baseline propensity to convict, we find that a previous guilty verdict significantly increases the chance of a subsequent guilty verdict by 6.7%–14.1%. This positive autocorrelation is robust to alternative estimation strategies, independent of jury experience and driven by the most recent lag and pairs of similar cases. Such positive path dependency may be explained by sequential assimilation effects, which may reflect a jury's desire to be internally consistent, and short-term "emotional" impacts of the characteristics and/or outcome of one case on another. As in modern-day jury studies, our results highlight that factors independent of the facts and evidence of the current case might affect jury behavior. [ABSTRACT FROM AUTHOR]

To address the increasing concern about research reproducibility, cross-fertilisation across economics and other disciplines is likely to have far-reaching benefits. Our brief summary focuses on two areas in which a mutual investment in investigating possible cross-disciplinary synergies could benefit the scientific endeavour as a whole. First, the discipline of economic design has much to contribute to the discussion of possible reforms in science. Second, the empirical methodology of meta-research can inform practices to assess the validity of the economics literature. [ABSTRACT FROM AUTHOR]

The sciences are in an era of an alleged 'credibility crisis'. In this study, we discuss the reproducibility of empirical results, focusing on economics research. By combining theory and empirical evidence, we discuss the import of replication studies and whether they improve our confidence in novel findings. The theory sheds light on the importance of replications, even when replications are subject to bias. We then present a pilot meta-study of replication in experimental economics, a subfield serving as a positive benchmark for investigating the credibility of economics. Our meta-study highlights certain difficulties when applying meta-research to systematise the economics literature. [ABSTRACT FROM AUTHOR]

We investigate two critical dimensions of the credibility of empirical economics research: statistical power and bias. We survey 159 empirical economics literatures that draw upon 64,076 estimates of economic parameters reported in more than 6,700 empirical studies. Half of the research areas have nearly 90% of their results under-powered. The median statistical power is 18%, or less. A simple weighted average of those reported results that are adequately powered (power ≥ 80%) reveals that nearly 80% of the reported effects in these empirical economics literatures are exaggerated; typically, by a factor of two and with one-third inflated by a factor of four or more. [ABSTRACT FROM AUTHOR]

Throughout his career Geoff Harcourt has constantly and consistently highlighted the role of social norms and collective decisions in his study of modern economies. In doing so he has put a great deal of emphasis on the distribution of income between different social groups, especially so when concerned with the labour market. This article attempts to celebrate this particular aspect of his numerous contributions to economics by highlighting the role of social norms in influencing earnings across occupations and demographic groups in the USA. Social norms generate hierarchy, economic and non-economic inequalities amongst ascriptively distinguished groups. Drawing on the stratification and identity economics literatures, this article proposes a novel theoretical and empirical framework for analysing the effects of financialisation on the earnings dynamics of gender and race groups, a framework that is consistent with discrimination as a source of racial and gender inequality. The empirical methodology used in the form of long-run cointegrating relationships of groups’ earnings across occupations assesses whether a pattern of social norms on wage distribution emerges over time. The results of this study show that over the past 30 years social norms have exacerbated the stratification of the US labour market. [ABSTRACT FROM PUBLISHER]