Browsing by Subject "Uncertainty"

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Alliance re-formation: uncertainty, inexperience, complexity and termination experience in the thoroughbred horse industry, 2005-2010
(2013-02) Fudge, Darcy Kathryn
My dissertation investigates the effects of alliance termination conditions on alliance re-formation by the former partners. While the existing literature assumes that an alliance forms after termination in the same way as it formed initially, I treat termination as the beginning of a process rather than as an independent event. I argue that alliance re-formation is distinct from alliance formation due to the attributions the former partners develop concerning their prior termination. Alliance terminations are often ambiguous and subject to multiple interpretations. I identify typical alliance termination antecedents, such as primary uncertainty, task inexperience and complexity, as important conditions under which the termination occurs that counter intuitively facilitate alliance re-formation. These factors frame the termination as a positive attribution, based upon incidents which are exogenous, uncontrollable and rare. Further, I find greater alliance termination experience enhances alliance re-formation, allowing firms to adjust expectations from alliance terminations. I test these ideas on a longitudinal sample of 2,256 terminated alliances that include alliance re-formations in the Thoroughbred horse industry, where alliance partners breed and co-own horses to sell at auction. Using this unique data set to account for the fit and the performance of the terminated alliances, I find support for my hypotheses for primary uncertainty and termination experience. My dissertation makes a number of important theoretical contributions by showing that alliance re-formation has a set of antecedents distinct from factors informing initial formation, and that termination experience is an important antecedent to the trust and the re-creation of trust. These findings have valuable practical implications for strategic management and organizational practitioners.
Characteristic information required for human motor control:Computational aspects and neural mechanisms.
(2010-08) Christopoulos, Vassilios N.
Motor behavior involves creating and executing appropriate action plans based on goals and relevant information. This information characterizes the state of environment, the task and the state of actions performed. The perceptual system gathers this information from different sources: touch, vision, audition, scent and taste. Despite the richness of environment and the sophistication of our sensory system, it is not possible to extract a complete and accurate representation of the required states for motor behavior because of noise and ambiguity. Consequently, people effectively have “limited information” and therefore may not be certain about the outcomes of specific actions. For motor behavior to be robust to uncertainty, the brain needs to represent both relevant states and their uncertainties, and it needs to build compensation for uncertainty into its motor strategy. Generating motor behavior requires the brain to convert goals and information into action sequences, and the flexibility of human motor behavior suggests that brain implements a complex control model. The primary goal of this work is to improve the characterization of this control model by studying motor compensation for uncertainty and determining the neural mechanisms underlying information processing and the control model. Part of this thesis focuses on studying human compensation strategies in natural tasks like grasping. We experimentally tested the hypothesis that people compensate for object position uncertainty by adopting strategies that minimize the impact of uncertainty in grasp success. As we hypothesized, we found that people compensate for object position uncertainty by approaching the object along the direction of maximal position uncertainty. Additionally, we modeled the grasping task within the optimal control framework and found that human strategies share many characteristics with optimal strategies for grasping objects with position uncertainty. We are also interested to understand how the brain encodes and processes information relevant to movements. To accomplish this, we studied the spatial and temporal interactions of cortical regions underlying continuous and sequential movements using magnetoencephalography (MEG). Particularly, we took data from a previous study, in which subjects continuously copied a pentagon shape for 45 s using an XY joystick. Using Box-Jenkins time series analysis techniques, we found that neural interactions and variability of movement direction are integrated in a feedforward-feedback scheme. MEG sensors related to feedforward scheme were distributed around the left motor cortex and the cerebellum, whereas sensors related to feedback scheme had a strong focus around the parietal and the temporal cortices.
Creating Effective Decision Aids for Complex Tasks
(Usability Professionals' Association, 2008-08) Hayes, Caroline C.; Akhavi, Farnaz
Engineering design tasks require designers to continually compare, weigh, and choose among many complex alternatives. The quality of these selection decisions directly impacts the quality, cost, and safety of the final product. Because of the high degree of uncertainty in predicting the performance of alternatives while they are still just sketches on the drawing board, and the high cost of poor choices, mathematical decision methods incorporating uncertainty have long held much appeal for product designers, at least from a theoretical standpoint. Yet, such methods have not been widely adopted in practical settings. The goals of this work are to begin understanding why this is so and to identify future questions that may lead to solutions. This paper summarizes the results of several studies by the authors: two laboratory studies in which we asked product designers to use various mathematical models to compare and select design alternatives, and a set of ethnographic studies in which we observed product designers as they worked so that we could better understand their actual practices and needs during decision making. Based on these studies, we concluded that the mathematical models, as formulated, are not well suited to designers’ needs and approaches. We propose a research agenda for developing new approaches that combine decision theoretic and usercentered methods to create tools that can make product designers’ decision making work easi
The Economics of Perennial Bioenergy Crop Production Under Risk and Uncertainty: Understanding Economic and Policy Incentives
(2015-07) Smith, David
In order to reduce economic and national security risks, U.S. energy policy, in 2005 and 2007, mandated production of renewable biofuels. By 2014, the renewable biofuel industry was consuming approximately one-third of domestic corn and soybean production. To meet this growing demand, conservation and pastureland has been cultivated with corn and soybean, resulting in a reduction in ecosystem services, such as carbon storage, wildlife habitat and water quality. Perennial bioenergy crops (e.g., switchgrass) offer a more sustainable alternative. However, unlike annual crops, farmers and landowners have little experience with perennial bioenergy crop production. Uncertainty in production and prices will impact the supply of these novel crops into an emerging market. Using a stated preference method, I show that agricultural landowners are willing to produce perennial bioenergy crops, given competitive returns, but only on a portion of their land. These results suggest that risk and uncertainty are important considerations in perennial bioenergy crop supply. Next, using a state-contingent approach to choice under uncertainty, I characterize the comparative static effects of government incentives to promote perennial bioenergy crop production. I show that uncertainty can dampen the impact of these incentives and in some cases even decrease perennial bioenergy acreage. Finally, I estimate the magnitude of the relative risks and the fixed cost hurdle using a discrete/continuous structural model. I show that agricultural landowners perceive a relatively high level of risk from perennial bioenergy crop production and are less willing to produce short rotation woody crops than perennial grasses.
Economics of Water Pollution: Permit Trading, Reliability of Pollution Control, and Asymmetric Information
(2017-06) Wang, Zhiyu
This dissertation analyzes three aspects of the economics of water pollution and is organized in three essays. The first essay examines permit trading in water pollution where pollution is different in the persistence of environmental damage. The second essay examines the problem of reliably meeting a water quality standard under environmental uncertainty. The third essay considers the problem of reliably meeting a water quality standard under asymmetric information. The first essay analyzes how to properly design water pollution permit trading with pollutants which are non-uniformly mixed across space and have different persistence in environmental damages. The efficient solution to water pollution abatement involves integrating the difference in the environmental persistence caused by pollutants and setting trading ratios in permit trading accordingly. The second essay analyzes the problem of meeting a water quality standard with a certain degree of reliability given environmental stochasticity, where the distribution of environmental stochasticity is unknown. The essay develops the use of a reliability target that caps the probability of not attaining the target in any period at α, where 1− α is the level of reliability. A single-tailed version of Chebyshev’s inequality is used that measures the maximum probability of being in the right tail of the probability distribution. The essay also examines a margin of safety in Total Maximum Daily Loads (TMDL) and concludes that if a given level of reliability is desirable, the margin of safety should vary with the level of TMDL. The third essay considers the problem of reliably achieving a water quality standard where water pollution is generated by multiple sources and there is asymmetric information. Asymmetric information comes from privately observable actions like fertilizer application and private information on profits. This essay develops a Vickery-Clark-Groves (VCG) subsidy auction and incorporates a fine/reward scheme based on whether the water quality standard is met. This subsidy auction can achieve an efficient solution to the problem of achieving a reliability standard under asymmetric information.
Essays in Macroeconomics
(2019-07) Salgado, Sergio C.
This dissertation consists of three chapters. In the first essay of my thesis, I document a marked declined in the share of entrepreneurial households in the United States and I propose and quantify a mechanism to account for such decline. Using individual-level data, I provide evidence on the decline in the population share of entrepreneurs and in the entry rate into entrepreneurship. I also show that the decline is most concentrated among college graduates. Then, using an otherwise standard entrepreneurial choice model with two skill groups of individuals, I show that the decline in entrepreneurship is the equilibrium outcome of two forces that have increased the returns to high skill labor: the skill-biased technical change and the decrease in the cost of capital goods. I find that these two technological forces jointly account for three-quarters of the decline in the share of entrepreneurs observed in the United States over the last 30 years. In the second essay of this thesis, Nicholas Bloom, Fatih Guvenen, and I study the cyclicality the distribution of firm-leve outcomes over the business cycle. Using firm-level panel data from the US Census and for more than forty other countries, we show that the skewness of the growth rate of employment and sales is procyclical. In particular, during recessions, they display a large left tail of negative growth rates (and during booms, a large right tail of positive growth rates). These results are robust to different selection criteria, across countries, industries, and measures. We find similar results at the industry level: industries with falling growth rates see more left-skewed growth rates of firm sales. We then build a heterogeneous agents model in which entrepreneurs face shocks with time-varying skewness that matches the firm-level distributions we document for the United States. Our quantitative results show that a negative shock to the skewness of firms’ productivity growth (keeping the mean and variance constant) generates a significant and persistent drop in output, investment, hiring, and consumption. In the third and last essay of this thesis, Mons Chan, Min Xu, and I, study the importance of fluctuation of firm-level productivity in explaining the fluctuations in workers’ wages. In particular, we use matched employer-employee data from Denmark to analyze the extent to which firms’ productivity shocks are passed to workers’ wages. The richness of our dataset allows us to separately study continuing and non-continuing workers, to correct for selection, and to investigate how the passthrough varies across narrow population groups. Our results show a much larger degree of passthrough from firms’ shocks to workers’ wages than reported in previous research. On average, an increase of one standard deviation in firm-level TFP commands an increase of 3.0% in annual wages ($1,500 USD for the average worker). Furthermore, we find that the effect of productivity shocks on wage growth for workers who switch firms is larger relative to workers that stay within the same firm. Finally, we find large differences in the passthrough for workers of different income levels, ages, industries, and firms of different productivity levels. In the second part of our paper, we estimate a stochastic process of income that captures the salient features the data. We then embed the estimated stochastic process into a life-cycle consumption savings model to evaluate the welfare and distributional implications of the passthrough from firms’ TFP shocks to workers’ wages.
Essays on the economics of bioenergy and emissions trading.
(2012-06) Moon, Jin-Young
The three essays in this dissertation focus on the economics of bioenergy and emissions trading. Chapter Two analyzes the economic impacts of cellulosic feedstock production in a major watershed of south-central Minnesota. A regional economic model of agricultural production in the watershed is constructed. By integrating environmental parameters from a biophysical simulation analysis of the watershed, the model focuses on economic and environmental issues associated with increasing use of two cellulosic feedstocks, corn stover and switchgrass, at the watershed level. Results indicate that corn stover can be produced at a relatively low marginal cost compared to switchgrass. Sediment and nutrient losses from corn stover production make switchgrass more promising on environmental grounds but the high marginal cost of production causes switchgrass to cover only small part of crop land if farmers have unrestricted choice about how to supply cellulosic feedstocks. Chapter Three extends the model of chapter Two to examine the tradeoffs between cellulosic feedstock production and water quality by analyzing policy options targeted to address those tradeoffs. Policy alternatives considered include restrictions on total nitrate-N load in the watershed and production subsidies for switchgrass – an energy crop with potential environmental benefits. Restricting nitrate-N loads increases the cost of cellulosic feedstock supply and in some circumstances makes switchgrass production an economical alternative. Switchgrass production subsidies, if sufficiently high can increase feedstock supply while reducing or eliminating the negative effects of feedstock production on water quality. Chapter Four examines how uncertainty in emissions affects firms’ decision of permit purchase and abatement. This paper extends previous models of emissions trading by considering uncertainty as well as the order of firms’ decisions about abatement and permit trading. When there is uncertainty about emissions, total expected emissions are the same regardless of the order of moves. The results show that whether firms abate more under uncertainty is dependent on the expected penalty cost and marginal abatement cost. If the expected marginal penalty cost is greater than the marginal abatement cost, the firm will choose to reduce emissions and abate more under uncertainty. When expected penalty is greater than marginal cost of abatement, increase in uncertainty makes expected emissions decrease given unit penalty fee.
Mitigating floods and pestilence: examining the provision of public goods under uncertainty
(2012-01) Aultman, Stephen Seyler
This dissertation contains two essays on the provision of a specific type of public good, specifically public goods that affect the probability with which different states of the world occur. Two potential examples of this type of public good are levees and monitoring networks for disease. To distinguish this type of public good from those that have no relationship with risk we adopt the term risk-modifying public good. The first essay focuses on the provision of risk-modifying public goods within a mechanism design framework. The main result of the first essay is proof that there exists a family of social choice functions that provide a Pareto efficient level of a risk-modifying public good and that these social choice functions are implementable in dominant strategies. The family of social choice functions we identify provide a unique level of the public good and vary only in how the gains from providing the public good are distributed amongst the agents in the economy. The second essay is empirical in nature and focuses on measuring the returns to information gathered by a monitoring network for an invasive wind borne crop disease (soybean rust). What makes this information a risk-modifying public good is that it is used by agricultural producers to inform themselves about their risk of being affected by this invasive species and to make fungicide application decisions. In this type of situation, applying fungicides when the disease is actually present can be thought of as one state-of-the-world and applying fungicides when one shouldn't another. Thus, a state-of-the-world can be thought of as a combination of agent's beliefs about the environment relative to the reality that they face. A dynamic model of farmer decision making is presented where the information from the monitoring network can help farmers better learn about their risk of soybean rust infection and can potentially be used as an alternative to a farmer scouting soybean fields if the information is sufficiently accurate. Using this model, the marginal returns produced by additional years of monitoring and the question of the optimal spatial arrangement of sentinel plots are considered.
Quantication of the Impact of Uncertainty in Power Systems using Convex Optimization
(2017-06) Choi, Hyungjin
Rampant integration of renewable resources (e.g., photovoltaic and wind-energy conversion systems) and uncontrollable and elastic loads (e.g., plug-in hybrid electric vehicles) are rapidly transforming power systems. In this environment, an analytic method to quantify the impact of parametric and input uncertainty will be critical to ensure the reliable operation of next-generation power systems. This task is analytically and computationally challenging since power-system dynamics are nonlinear in nature. In this thesis, we present analytic methods to quantify the impact of parametric and input uncertainties for two important applications in power systems: i) uncertainty propagation in power-system differential-algebraic equation model and power flow, and ii) robust stability assessment of power-system dynamics. For the first topic, an optimization-based method is presented to estimate maximum and minimum bounds on state variables while acknowleding worst-case parametric and input uncertainties in the model. The approach leverages a second-order Taylor-series expansion of the states around a nominal (known) solution. Maximum and minimum bounds are then estimated from either Semidefinite relaxation of Quadratically-Constrained Quadratic-Programming or Alternating Direction Method of Multipliers. For the second topic, an analytical method to quantify power systems stability margins while acknowleding uncertainty is presented within the framework of Lyapunov's direct method. It focuses on the algorithmic construction of Lyapunov functions and the estimation of the robust Region-Of-Attraction with Sum-of-Squares optimization problems which can be translated into semidefinite problems. For both topics, numerical case studies are presented for different test systems to demonstrate and validate the proposed methods.
Three essays on decision-making under uncertainty in developing countries.
(2012-08) Lim, Sung Soo
People face substantial risk and uncertainty throughout most developing countries. Economists have provided an array of economic theories to explain how decision agents make choices under uncertainty. Decision theory distinguishes between risky prospects and uncertain prospects. Under the classical theory of decision under risk, the utility of each outcome is weighted by its probability of occurrence. Expected utility theory was developed to explain attitudes toward risk, namely risk aversion and risk loving. Experimental studies of decision under risk have shown that people often violate the expected utility model. This study has been prompted by two questions about decision making under uncertainty: (1) Do agents in developing countries conceptualize the uncertainty in a way that is consistent with expected utility theory? (2) How do agents cope with uncertainty that lasts a long period of time? The first question is motivated by a notion that studies in the field of development economics often confound the two concepts of risk and uncertainty under the paradigm of expected utility theory. The second question is motivated by another notion, which is that there are a limited number of studies that investigate coping strategies of households during a prolonged period of uncertainty, such as morbidity shocks. To address these two questions, the first essay revisits the neoclassical theory of migration. The second and the third essays examine the impact of prime-age adult morbidity on intrahousehold resource allocation.
Two-sided uncertainty in persuasion games.
(2009-05) Pillai, Evsen Turkay
I study a communication game between a listener and a speaker in which the speaker sends costless but verifiable messages in order to persuade the listener to take an action that is favorable for the speaker. Because of its practical relevance for many economic, legal, and political matters, this problem has been well studied in economics literature, usually under the assumption that the speaker knows the preferences of the listener. This assumption is restrictive, as in many persuasion problems the speaker might not know the preferences of the listener, possibly because either the listener is not able to communicate her preferences or wants to deliberately keep the speaker uncertain about her preferences. I explore two possible tools that can be used for information extraction in such a game. The first tool is the uncertainty about the listener's preferences (type) that may be maintained or removed. Another tool is to change the ``scale of actions"-for example, increasing or decreasing legal punishment. First, in a persuasion game in which the listener has two possible types and two actions to choose from, I show that when one of the listener's types is more likely, the equilibrium speaker strategies are a subset of those that arise when the speaker knows the listener's type. Further, I show that among the equilibria that deliver the highest expected utility to the more likely type when there is certainty, there is always one that remains in the set of equilibria under uncertainty. These results imply that maintaining uncertainty can be a useful tool only for the less likely type. To analyze the effect of the second tool, I study a legal application of persuasion games with two-sided uncertainty. A defendant (speaker) is trying to persuade a judge by presenting evidence to take a favorable legal action rather than less favorable ones on his case. I show that the equilibrium disclosure of the defendant is not affected by a change in the scale of legal actions when there is no uncertainty on how the judge evaluates evidence. With uncertainty, however, the defendant can be induced to disclose more information by decreasing the severity of the most unfavorable legal action relative to the favorable one.

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