To understand how decisions to invest in stocks are taken, economists need to elicit expectations regarding risk–return tradeoff. One of the few surveys which has elicited such expectations is the Survey of Economic Expectations in 1999–2001. Using the data from this survey, Dominitz and Manski find considerable heterogeneity across respondents that cannot be explained by simple models of expectations formation. Adapting a principle of dual reasoning borrowed from Kahneman, this paper classifies respondents according to their sensitivity to some pathologies. We find a substantial amount of unobserved heterogeneity between the least and the most sensitive respondents. We then sketch a model of expectations formation. Copyright © 2010 John Wiley & Sons, Ltd.

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We study a continuous one-dimensional spatial model of electoral competition with two office-motivated candidates differentiated by their "intensity valence", the degree to which they will implement their announced policy. The model generates results that differ significantly from those obtained in models with additive valence. First, the low intensity valence candidate is supported by voters with ideal points on both extremes of the policy space. Second, there exist pure strategy Nash equilibria (PSNE) in which the high intensity valence candidate wins if the distribution of voters in the policy space is sufficiently homogeneous. If, instead, this distribution is sufficiently heterogeneous, there are PSNE in which the low intensity valence candidate wins. For moderate heterogeneity, only mixed strategy equilibria exist.

This paper uses data from the 2004 pre-election survey of the American National Election Study to test empirically different ways of incorporating a valence parameter into a Downsian utility function. We call particular attention to the problem of interpersonal incomparability of responses to the liberal-conservative scale, and use the Aldrich-McKelvey's pathbreaking method to obtain accurate distances between respondents and candidates, the key regressors. We find that the utility function the most supported by the empirical evidence, the intensity valence utility function, is the one which permits to make the better predictions for the 2004 presidential election. We also consider counterfactual analyses wherein we test if Bush, the candidate with the highest intensity valence, has dominant strategies which would have insured him to obtain a majority of the popular vote. According to the theory, it is known that the candidate with the highest intensity valence does not have such dominant strategies if the distribution of voters in the policy space is too heterogenous. Nevertheless, we show the distribution of voters in 2004 is sufficiently homogenous for Bush to have dominant strategies.

This paper presents empirical work grounded in the soft budget constraint (SBC) literature. A loan is soft when a bank cannot commit the enterprise to hold to a fixed initial budget and/or the timing of repayment. Using data collected by the European Bank for Reconstruction and Development (EBRD) (Business Environment and Enterprise Performance Survey (BEEPS), 2002) in 26 transition economies, we analyze the determinants of managers' expectations of having a soft loan. In particular, we find that managers' expectations are lower when the initial financing requires collateral, and higher for larger firms and when firms had recently experienced financial distress. We also provide evidence that managers' expectations influence their price responsiveness.JEL classifications: C34, D84, G3, 012, P21.

Economists have increasingly elicited probabilistic expectations from survey respondents. Subjective probabilistic expectations show great promise to improve the estimation of structural models of decision making under uncertainty. However, a robust finding in these surveys is an inappropriate heap of responses at “50%,” suggesting that some of these responses are uninformative. The way these 50s are treated in the subsequent analysis is of major importance. Taking the 50s at face value will bias any aggregate statistics. Conversely, deleting them is not appropriate if some of these answers do convey some information. Furthermore, the attention of researchers is so focused on this heap of 50s that they do not consider the possibility that other answers may be uninformative as well. This paper proposes to take a fresh look at these questions using a new method based on weak assumptions to identify the informativeness of an answer. Applying the method to probabilistic expectations of equity returns in three waves of the Survey of Economic Expectations in 1999–2001, I find that: (i) at least 65% of the 50s convey no information at all; (ii) it is the answer most often provided among the answers identified as uninformative; (iii) but even if the 50s are a major contributor to noise, they represent at best 70% of the identified uninformative answers. These findings have various implications for survey design.