Behavioral theory predicts that investor overconfidence leads to overpricing because overconfident investors overestimate the quality of their information and underestimate risk. We test this ...prediction by using a measure of investor overconfidence derived from the characteristics and holdings of U.S. equity mutual fund managers. We find that firms with more overconfident investors are relatively overvalued based on the market-to-book ratio and a misvaluation measure. The result is stronger among stocks with greater mutual fund ownership, particularly by active mutual funds. Firms with more overconfident investors also exhibit lower subsequent stock returns, issue more equity, and invest more. Overall, our findings suggest that investor overconfidence is significantly related to firm valuation and corporate decisions.
The Internet appendix is available at
https://doi.org/10.1287/mnsc.2017.2806
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This paper was accepted by Neng Wang, finance.
Despite significant advances in the development of the ecosystem services concept across the science and policy arenas, the valuation of ecosystem services to guide sustainable development remains ...challenging, especially at a local scale and in data scarce regions. In this paper, we review and compare major past and current valuation approaches and discuss their key strengths and weaknesses for guiding policy decisions. To deal with the complexity of methods used in different valuation approaches, our review uses multiple entry points: data vs simulation, habitat vs system vs place-based, specific vs entire portfolio, local vs regional scale, and monetary vs non-monetary. We find that although most valuation approaches are useful to explain ecosystem services at a macro/system level, an application of locally relevant valuation approaches, which allows for a more integrated valuation relevant to decision making is still hindered by data-scarcity. The advent of spatially explicit policy support systems shows particular promise to make the best use of available data and simulations. Data collection remains crucial for the local scale and in data scarce regions. Leveraging citizen science-based data and knowledge co-generation may support the integrated valuation, while at the same time making the valuation process more inclusive, replicable and policy-oriented.
•Reviews different ecosystem services valuation approaches including spatially explicit policy support systems.•Explores the challenges in generating locally-relevant evidence to support decision making.•Needs a tailored combination of specific approaches and policy support systems for the local scale and in data scarce regions.•Emphasizes on citizen science-based data and knowledge to make valuation process more policy oriented.
The continuously dramatic rise of the number of people suffering from depression is attracting an increasing demand for effective ways of preventing depression. Besides the need for new ...interventions, there is also a continuous call for a more robust framework for economic evaluation of public interventions. Taking into account people’s preferences for public goods is not straightforward to quantify, and therefore, in addition to designing a new technique for valuing nonmarket goods and services, it is equally important to use valuation methods that are not yet established as traditional. One less commonly used method to assess the cost of depression in monetary terms is the well-being valuation method or the life satisfaction approach, which requires answers to only a few questions that are significantly less time demanding for the respondents than more traditional approaches. We added a well-being question to a contingent valuation web-survey that describes hypothetical interventions aimed to prevent depression in Sweden and estimated that the loss in life satisfaction for individuals who experienced depression varies between approximately 350 and 45,000 euros per year. The monetary compensation would be, on average, higher for individuals who experienced own depression than for those who know someone near, family or friend, who experienced depression, for men than for women, and for middle-aged than for younger and older individuals, respectively.
Global concern regarding ultrafine particles (UFPs), which are particulate matter (PM) with a diameter of less than 100 nm, is increasing. These particles are difficult to measure using the current ...methods because their characteristics are different from those of other air pollutants. Therefore, a new monitoring system is required to obtain accurate UFP information, which will raise the financial burden of the government and people. In this study, we estimated the economic value of UFP information by evaluating the willingness-to-pay (WTP) for the UFP monitoring and reporting system. We used the contingent valuation method (CVM) and the one-and-one-half-bounded dichotomous choice (OOHBDC) spike model. We analyzed how the respondents’ socio-economic variables, as well as their cognition level of PM, affected their WTP. Therefore, we collected WTP data of 1040 Korean respondents through an online survey. The estimated mean WTP for building a UFP monitoring and reporting system is KRW 6958.55–7222.55 (USD 6.22–6.45) per household per year. We found that people satisfied with the current air pollutant information, and generally possessing relatively greater knowledge of UFPs, have higher WTP for a UFP monitoring and reporting system. We found that people are willing to pay more than the actual installation and operating costs of current air pollution monitoring systems. If the collected UFP data is disclosed in an easily accessible manner, as is current air pollutant data, it will be possible to secure more public acceptance for expanding the UFP monitoring and reporting system nationwide.
Revealed and stated preference techniques are widely used to assess willingness to pay (WTP) for non-market goods as input to public and private decision-making. However, individuals first have to ...satisfy subsistence needs through market good consumption, which affects their ability to pay. We provide a methodological framework and derive a simple ex post adjustment factor to account for this effect. We quantify its impacts on the WTP for non-market goods and the ranking of projects theoretically, numerically and empirically. This confirms that non-adjusted WTP tends to be plutocratic: the views of the richest - whatever they are - are more likely to impact decision-making, potentially leading to ranking reversal between projects. We also suggest that the subsistence needs-based adjustment factor we propose has a role to play in value transfer procedures. The overall goal is a better representation of the entire population's preferences with regard to non-market goods.
Land use/land cover (LULC) dynamics alter ecosystem services values (ESVs), yet quantitative evaluations of changes in ESVs are seldom attempted. Using Munessa–Shashemene landscape of the Ethiopian ...highlands as an example, we showed estimate of changes in ESVs in response to LULC dynamics over the past four decades (1973–2012). Estimation and change analyses of ESVs were conducted, mainly, by employing GIS using LULC datasets of the year 1973, 1986, 2000 and 2012 with their corresponding global value coefficients developed earlier and our own modified conservative value coefficients for the studied landscape. The results between periods revealed a decrease of total ESVs from US$ 130.5 million in 1973, to US$ 118.5, 114.8 and 111.1 million in 1986, 2000 and 2012, respectively. While using global value coefficients, the total ESVs declined from US$ 164.6 million in 1973, to US$ 135.8, 127.2 and 118.7 million in 1986, 2000 and 2012, respectively. The results from the analyses of changes in the four decades revealed a total loss of ESVs ranging from US$ 19.3 million when using our own modified value coefficients to US$ 45.9 million when employing global value coefficients. Changes have also occurred in values of individual ecosystem service functions, such as erosion control, nutrient cycling, climate regulation and water treatment, which were among the highest contributors of the total ESVs. However, the value of food production service function consistently increased during the study periods although not drastically. All in all, it must be considered a minimum estimate of ESV changes due to uncertainties in the value coefficients used in this study. We conclude that the decline of ESVs reflected the effects of ecological degradation in the studied landscape and suggest further studies to explore future options and formulate intervention strategies.
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•Estimating ecosystem service value changes provided insights into ecosystem status.•We estimate at least US$ 19.3 million loss of service values in four decades.•Huge conversion of forests is still affecting provision of ecosystem services.•Ongoing crop production system affected ecosystem health.•Decline of ecosystem service values reflected effects of ecological degradation.
In reinforcement learning (RL) tasks, decision makers learn the values of actions in a context-dependent fashion. Although context dependence has many advantages, it can lead to suboptimal ...preferences when choice options are extrapolated beyond their original encoding contexts. Here, we tested whether we could manipulate context dependence in RL by introducing a secondary task designed to bias attention toward either absolute or relative outcomes. Participants completed a learning phase that involved choices between two (Experiment 1; n = 111) or three (Experiment 2; n = 90) options per trial with complete feedback. Choice options were grouped in stable contexts so that only a small set of the possible combinations were encountered. One group of participants rated how they felt about particular options (Feelings condition), and another group reported how much they expected to win from particular options (Outcomes condition) at occasional points throughout the learning phase. A third group (Control condition) made no ratings. In the subsequent transfer test, participants chose between all possible pairs of options without feedback. The experimental manipulation had no effect on learning phase performance but a significant effect on transfer, with the Feelings and Control conditions exhibiting greater context dependence than the Outcomes condition. Further, rated feelings reflected relative valuation whereas expected outcomes were more sensitive to absolute option values. Hierarchical Bayesian modeling was used to summarize the findings from both experiments. Our results suggest that attending to affective reactions versus expected outcomes moderates the effects of encoding context on subsequent choices.
Much has been written about the central role of reflexivity in qualitative research, yet there has been no empirical study of how researchers actually practice reflexivity and what it is like for ...them to do so. To address this question, a project was developed to gather information directly from qualitative social work researchers about the perceived benefits, challenges, and limitations of reflexivity. Participants, representing eight countries with the majority (65%) from the United States, included researchers using diverse methods with varying degrees of experience. In their interviews, these 34 scholars discussed the benefits of reflexive activities for both themselves and their research projects; obstacles that were personal, project-related, professional, and systemic; a discrepancy between valuation and actual use of reflexive practices; and the need to balance flexibility and rigor. The article concludes with directions for further inquiry and suggestions for assessing the adequacy of reflexivity in published studies.
The standard test for scope sensitivity in contingent valuation studies determines whether the response to changes in scope is statistically significant; it does not address whether the magnitude of ...response is appropriate given the specified changes in scope. We examine contingent valuation studies that implemented scope tests to determine what they imply about the adequacy of response to scope. We find that in the vast majority of studies, the magnitude of response cannot be assessed. Only three studies permit such an assessment: Samples and Hollyer (1990), Diamond et al. (1993) and Chapman et al. (2009). The first two papers find that responses to their surveys did not vary adequately with scope. The third study passed the standard scope test, but we show that the magnitude of response in this study is inadequate by straightforward methods of assessment and cannot be explained by diminishing marginal utility or substitution. More research is needed on this issue, including wider application of adding-up tests on incremental parts, as well as the development of other methods that permit an assessment of the magnitude of response or other tests of rationality.
► We review 109 contingent valuation studies that performed scope tests. ► We determine what, if anything, each study finds about whether the magnitude of response is reasonable. ► In all but three studies, the magnitude of response cannot be assessed. ► In these three studies, the response to scope is found to be inadequately small. ► More research is needed on the adequacy of response in contingent valuation.
Abstract
Researchers have long been trying to understand why individuals dislike annuities. Here, we investigate if the process individuals use to assess the financial value of annuities may lead ...them to inaccurately value annuities. In Study 1, participants were asked to assess the monthly payments associated with a specific annuity lump sum or the annuity lump sum associated with a specific monthly payment. They were then asked to describe how they arrived at their answers. We find that when making this assessment, 42% of participants report attempts at using math, with some even describing mathematical formulas. Most other participants reported guessing instead. Reporting attempts at math is more common among participants with higher financial literacy and numeracy. Reported attempts at math, financial literacy, and numeracy predict arriving at more realistic financial values for annuities, as well as incorporating assessments of life expectancy in the math. Based on this process knowledge, we then designed an experiment in Study 2 and tested the effect of presenting information about life expectancy, providing feedback about payouts or their combination. We find that we can thereby change the assessed financial value of annuities and increase participants' interest in annuities, especially among participants that reported attempts at using math. Understanding the processes individuals use to assess the value of annuities informs theory and practice.
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