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The benchmark model of economics, expected utility theory, assumes that individuals manage uncertainty by forming beliefs about all relevant events and that these beliefs satisfy the probability axioms. There is ample scope for individuals to come to radically different conclusions on the likelihood of events. The first chapter of this thesis examines differences between individuals in how their beliefs evolve in the context of stock returns. In this chapter, which is joint with Hans-Martin von Gaudecker, we analyse a long panel of households' stock market beliefs to gain insights into the nature of the levels, dynamics, and informativeness of these expectations. In a first step, we classify respondents into one of five groups based on their beliefs data alone. In a second step, we estimate models of expectations at the group level so that belief levels, volatility, and response to information can vary freely across groups. At opposite extremes in terms of optimism, we identify pessimists who expect substantially negative returns and financially sophisticated individuals whose expectations are close to the historical average. Two groups expect average returns around zero and differ only in how they respond to information: Extrapolators who become more optimistic following positive information and mean-reverters for whom the opposite is the case. The final group is characterised by its members being unable or unwilling to quantify their beliefs about future returns. Expected utility theory cannot fully account for how individuals choose under uncertainty. In some settings, observed decisions of a sizeable fraction of individuals cannot be explained with any probabilistic belief. This suggests that heterogeneity in how individuals manage uncertainty goes beyond beliefs, extending to what has become known as ambiguity attitudes. Analysis of these attitudes for natural events is the subject of the second chapter, which is joint with Hans-Martin von Gaudecker and Christian Zimpelmann. We analyse the stability and distribution of ambiguity attitudes using a representative sample. We employ four waves of data from a survey instrument with high-powered incentives. Structural estimation of random utility models yields three individual-level parameters: Ambiguity aversion, likelihood insensitivity or perceived level of ambiguity, and the variance of decision errors. We demonstrate that these parameters are very heterogeneous but fairly stable over time and across domains. These contexts span financial markets, our main application, and climate change. The ambiguity parameters are interdependent in their interpretation and the precision of their estimates depends on decision errors. To describe heterogeneity in these three dimensions, we adopt a discrete classification approach. A third of our sample comes rather close to the behaviour of expected utility maximisers. Half of the sample is characterized by a high likelihood insensitivity, with thirty per cent ambiguity-averse and twenty per cent making ambiguity-seeking choices for most events. For the remaining eighteen per cent, we estimate sizeable error parameters, which implies that no robust conclusions about their ambiguity attitudes are possible. Predicting group membership with a large number of observed characteristics shows reasonable patterns. The difficulty of finding reliable probabilities for uncertain events raises the question how individuals aspiring to be rational should approach it. One intriguing proposal is to turn to prediction markets or bookmakers. In the third chapter, I examine betting odds, which are often seen as a credible source of predictions for future events in sports, politics, and entertainment. Who will win Wimbledon, who will be the next US President and which movie will win Best Picture at the Oscars? Betting odds, offered by bookmakers or by traders in prediction markets, typically exist for answers to each of these questions and can be turned into implied probabilities. Are these well-calibrated in the sense that they indicate the empirical frequency of outcomes? Do they incorporate publicly available information that might be relevant for prediction? Using a large sample of ATP tennis matches, I investigate these questions with machine learning methods that combine model-based ratings of player strength with a large number of other player features to estimate probabilities. I find that, in almost all settings, implied probabilities are very well calibrated and can be regarded as probabilities of events that condition on an information set containing publicly available statistics on players and matches. They reduce the error of the best prediction model by around 1.3% in terms of negative log-likelihood.

This thesis proposes the application of various economic theories and analytical techniques from the fields of energy economics, environmental economics, comparative economic systems and, development economics in the regional context of South and Central Asia. Applying IV estimation in essay one leads to the conclusion that ethnolinguistic diversity instrumented by diversity of ancient civilizations/empires is strongly linked with contemporary development in Afghanistan. Ethnolinguistic diversity induces higher levels of trust and lower levels of individualism. Moreover, it is associated with higher levels of income and lower levels of violence or crime. A robust regression discontinuity design has been used to estimate the impact of historical ethnolinguistic borders on the contemporary economic development of Afghanistan. Pashtuns have the clear advantage over the other ethnolinguistic groups in Afghanistan in terms of level of income and provision of public goods such as safe drinking water and electricity. The Pashtun belt has suffered more violence and crime due to foreign interference in the Pashtun areas. The ethnolinguistic division in Afghanistan in terms of political preferences is obvious by the fact that support for Ashraf Ghani declines significantly when crossing the ethnic and linguistic border into the non-Pashtun areas. Structural equation modeling results reveal that the empires of Achaemenids, Parthians, and, most prominently, Sasanians, categorized as Old Persian, and the empires of Turkic origin left a positive and persistent impact on the contemporary economic development of Afghanistan. Essay 2 and essay 3 of the dissertation deal with the economics of electricity and sustainable energy. Electricity generation from the use of fossil fuels is one of the largest sources of man-made carbon dioxide emissions in the world. Switching the power industry to the use of renewables such as hydro, solar, and wind energy is an option to deal with the issue of climate change. There are various ...

This thesis consists of three papers. The first paper provides new measures of global and country-specific macroeconomic uncertainty using a global vector autoregressive (GVAR) model. The approach accounts for the international propagation of uncertainty, captures global uncertainty shocks and quantifies cross-country uncertainty spillovers. Due to global economic linkages, measured uncertainty is highly correlated across countries. Moreover, the paper exploits the error correction representation of the GVAR to distinguish between short-run and long-run uncertainty, and shows that such distinction may help reconcile popular indicators of uncertainty, such as the VIX and the economic policy uncertainty index by Baker, Bloom and Davis (2016). The second paper documents the predictive potential of financial-cycle indicators for real economic activity through an extensive comparative evaluation using a large dataset for the United States. The study examines in-sample and out-of-sample performance and explores a variety of methods for data-rich environments. A cyclically-adjusted house price-rent ratio and the liabilities-income ratio of the non-corporate business sector appear as the most powerful predictors of GDP over horizons between 1 and 7 years in recent decades. Overall, financial-cycle variables are shown to provide valuable predictive content both individually and collectively. High-dimensional models and forecast combinations using all available data fail to outperform the best small models. The third paper investigates an approach for enhancing density forecasts of macroeconomic variables using Bayesian Markov-switching models. Alternative views on economic regimes are pooled to form flexible composite forecasts, which are optimized with respect to log scores and probability integral transforms. In an application to U.S. GDP, the approach produces well-calibrated forecasts, achieves better calibration than competing methods and delivers good accuracy in terms of predictive densities. The proposed procedure also evaluates the time-varying contribution of different views to calibration and accuracy. The empirical application examines views derived from the Fed supervisory scenarios.

Defence date: 28 May 2015 ; Examining Board: Professor Andrea Mattozzi, Supervisor, EUI; Professor Andrea Ichino, EUI; Professor Peter Fredriksson, Stockholm University; Professor Tarjei Havnes, University of Oslo. ; Abstract The first chapter analyzes the effects of commercial television in Norway. Matching data on cable television networks with individual-level administrative register data, we find that the expansion of commercial television reduced ability test scores as well as high school graduation rates. We find stronger effects on sons of low-income parents and particularly large effect for children in elementary school. Aggregate data show a substantial drop in time spent reading by young people in the same period, suggesting that television watching may have crowded out more cognitively stimulating activities such as reading. This chapter is joint work with Simen Markussen and Knut Røed. The second chapter investigates how sickness absence behaviour in Norwegian municipalities was affected by the terrorist attack in Norway on July 22, 2011. Using register data covering the complete Norwegian population, I find that sickness absence rates declined substantially in municipalities affected more intensely by the attack. In municipalities from which a resident was killed in the attack, sickness absence rates declined by 4% compared to municipalities without victims. The effect is precisely estimated, stable across several challenging specifications, and persists for as long as there is available data. The effect for people in their 20's is more than twice that for the population at large – for this group, local exposure to the attack decreased absence rates by around 10%. The third chapter exploits a natural experiment in the Norwegian political system. I find that obtaining the right to vote at a lower age is associated with substantially higher turnout among first-time voters, and that this is driven by parental influence. Counter to conventional wisdom about the habitual nature of voting, this difference in political participation does not persist for subsequent elections.

This dissertation tackles three questions theoretically and empirically. The first chapter studies how non-binding default options influence the behavior of consumers. We argue that default options arise in an inherently strategic setting between a default setter and decision makers. Building upon this premise, we show empirically and theoretically how default effects depend on the characteristics of the default setting institution and the decision makers. The second chapter provides evidence that two important features of labor markets—the existence of involuntary unemployment, and the segmentation of markets according to firms offering "good" and "bad" jobs—may have a common underlying cause. In particular, in the prevalent case that contracts are incomplete, the implicit contracting strategies adopted by firms may simultaneously generate both phenomena. The third chapter investigates the effects of power concentrating institutions on the quality of political selection, i.e., voters' capacity to empower competent politicians. We show that variations in power concentration involve a tradeoff. On the one hand, higher concentration of power enables the voters' preferred politician to enforce his agenda. On the other hand, higher power concentration leads to more opportunistic campaigns. We find theoretically and empirically that full power concentration is desirable only if politicians are strongly driven by welfare considerations.

Ziel dieser Dissertation ist es, die Ursachen und Konsequenzen von menschlichem Verhalten mittels empirischer Forschungsmethoden zu untersuchen. Obwohl die einzelnen Kapitel sehr unterschiedliche Themen behandeln, verbindet sie das Ziel, einen kausalen Mechanismus zu identifizieren oder entsprechende Methoden für andere empirische Arbeiten zu entwickeln bzw. bestehende Methoden zu verbessern. Das erste Kapitel untersucht ob sportliche Aktivität von Kindern ihre kognitiven und nicht-kognitiven Fähigkeiten beeinflusst. Dieses Kapitel basiert auf zwei Datensätzen zu Kindern in Deutschland und verwendet semi-parametrische Schätzmethoden, um für die Selbstselektion in sportliche Aktivität zu kontrollieren. Die Ergebnisse zeigen, dass sportliche Aktivität die schulische Leistung und das Gruppenverhalten verbessert. Das zweite Kapitel untersucht die Sensitivität eines Radiusmatching Schätzers in Bezug auf verschiedene Tuningparameter mittels einer empirischen Monte Carlo Simulation. Die Ergebnisse dieser Studie helfen Anwendern die passenden Werte für die einzelnen Parameter zu wählen. Im Rahmen dieses Papers wurde der Schätzer für die Softwarepakete GAUSS, STATA und R implementiert. Das dritte Kapitel untersucht den Effekt von Emigration auf das Wahlverhalten von im Ursprungsland verbleibenden Haushaltsmitgliedern. Die dahinter liegende Hypothese ist, dass Migranten in den Zielländern über die dortigen politischen Institutionen lernen und dieses Wissen an im Ursprungsland verbleibende Angehörige weitergeben. Diese Studie basiert auf administrativen und Umfragedaten der ehemaligen Sowjetrepublik Moldawien. Die Ergebnisse zeigen, dass die Migration eines Individuums nach Westeuropa dazu führt, dass die zurückbleibenden Haushaltsmitglieder eher liberale, pro-westliche Parteien wählen. Migration nach Russland hat keinen derartigen Effekt. Das vierte Kapitel beschäftigt sich mit der Identifikation des kausalen Effekts der Migration eines Individuums auf die zurückbleibenden Haushaltsmitglieder. Die Schwierigkeit für die Identifikation dieses Effekts ist die gleichzeitige Existenz von mehreren Selektionsproblemen ...