Measurement is a special type of evaluation more exact than opinion or estimation. Sawyer, Sankey... more Measurement is a special type of evaluation more exact than opinion or estimation. Sawyer, Sankey and Lombardo (2013) characterized a measure as satisfying five invariance and continuity conditions. Those conditions are satisfied as the result of a process of convergence towards that measure. Measurement in the physical sciences, for example of temperature, mineral hardness and mass, have emerged as the limit of this process of convergence. But, in the social sciences, possible measures are typically mixtures of opinion and estimation, not satisfying the conditions of a measure. In this paper, we consider the question is it possible to over-measure and, if so, what are the consequences? We define over-measurement to entail three conditions (1) That all sequences of possible measures do not converge in probability to a measure satisfying invariance and continuity conditions. (2) That the process of convergence is incomplete. (3) That the use of a single measure is inadmissible. Over-measurement represents anchoring to evaluations which are not measures. Instead, a portfolio of possible measures should be used with weights determined by the observer. The implications of over-measurement are considered, with an application to the measurement of GDP.
ABSTRACT In this paper we consider meta-economic principles, those principles which underscore th... more ABSTRACT In this paper we consider meta-economic principles, those principles which underscore the theoretical thinking of economics. Meta-economic principles are different from laws; they relate to the principles of theory construction, to the assumptions which are implicit in theory, to the constraints imposed on theories and to the analysis and scope of theories. We identify seven meta-economic principles; self-interest, the structure of incentives, minimisation of transactions costs, rationality and time consistency, individuals as economic agents, the pricing of everything and completion of markets. These are the principles which have spanned generations of economic thinking. To illustrate the role of meta-principles in economic theory, we consider a number of articles from the Journal of Political Economy. The testability of meta-economic principles is examined, both in terms of the normative principles adopted in economic theory, and in observed economic behaviour.
The reputation of an individual is the aggregate opinion of them. Reputation is usually explained... more The reputation of an individual is the aggregate opinion of them. Reputation is usually explained by attributes of the one reputed, not the motivation of those doing the reputing. In this paper, we develop a model of reputation where the opinions are assets that leverage the reputation of others. Reputation is then determined in an imaginary market of opinion. <br><br>An opinion of an individual is assumed to be a portfolio of options on their reputation and compound options on the opinions of others. The reputation options are imaginary assets leveraging increases and decreases in expected reputation. The compound options leverage the opinions of others. Reputation options are like real options except they are options on people rather than projects. <br><br>Representing opinions as assets allows results from asset pricing theory to be invoked. We use the capital asset pricing model to determine the equilibrium leverage of an opinion. We employ a model of pricing sentiment to show that opinions and reputation exhibit overreaction and under reaction as in other assets. We adopt a model of pricing comovement to show how networks of opinion form to determine reputation. We show that arbitrary expectations of options payoffs may lead to reputation bubbles similar to asset price bubbles.<br><br>The paper provides insights as to how individuals manage reputation. Three strategies are examined. Individuals anchor opinions to attributes to increase reputation options expectations, use opinion makers to generate markets of compound options, and network to refine expectations. <br>
This essay considers the question how should regulators be regulated. To regulate is to observe, ... more This essay considers the question how should regulators be regulated. To regulate is to observe, arbitrate and equilibrate in the public interest when that interest is not well-defined. The market for regulation is incomplete; while there is a limitless demand for regulation the supply of regulation is constrained. The response to market incompleteness has been threefold; deregulation, self-regulation and whistleblowing. Whistleblowing, in particular, has conferred many insights about regulation. Whistleblowing has shown the power of the independent regulator.Regulating conflict of interest is the unifying principle of the essay. A portfolio theory of regulation is developed where a regulator manages a portfolio of the public interest; and constrains the conflict between private interests and the public interest. The theory of regulation which emerges suggests a system of regulation with four principles: (1) Regulation of conflict of interest on a case-by-case basis; (2) Regulation by incentivizing all observers; (3) Regulation using sampling and red flags; (4) Regulatory courts.
ABSTRACT We propose a theory of value relevance based on a theory of information, with foundation... more ABSTRACT We propose a theory of value relevance based on a theory of information, with foundations in the efficient markets hypothesis. Like the EMH, we consider a theory of heterogeneous information, and like the EMH, testing for value relevance becomes a joint test of market efficiency, the process of price determination and value relevance. In assuming heterogeneity of information, we permit a classification of value relevance studies into weak-form, semi-strong and strong-form value relevance, similar to the classification used by Fama (1970) in defining the EMH. As a consequence, we introduce an Efficient Accounting Hypothesis, and classify existing value relevance studies according to this hypothesis. The theory which we propose implies a recursive procedure for estimation, and we discuss the econometric implications.
Measurement is a special type of evaluation that is more exact than either opinion or estimation.... more Measurement is a special type of evaluation that is more exact than either opinion or estimation. In the social sciences, in particular, most evaluations are not measures, but rather mixtures of opinion and estimation. Over-measurement represents anchoring to evaluations which are not measures. For an over-measured characteristic, single measures are used when instead a portfolio of possible measures should be used. There are three implications. First, measurements of characteristics which depend on the overmeasured characteristic are biased. Secondly, decisions which depend on the overmeasured characteristic are biased. Thirdly, over-measurement biases the measurement of uncertainty.
Measurement is a special type of evaluation more exact than opinion or estimation. Sawyer, Sankey... more Measurement is a special type of evaluation more exact than opinion or estimation. Sawyer, Sankey and Lombardo (2013) characterized a measure as satisfying five invariance and continuity conditions. Those conditions are satisfied as the result of a process of convergence towards that measure. Measurement in the physical sciences, for example of temperature, mineral hardness and mass, have emerged as the limit of this process of convergence. But, in the social sciences, possible measures are typically mixtures of opinion and estimation, not satisfying the conditions of a measure. In this paper, we consider the question is it possible to over-measure and, if so, what are the consequences? We define over-measurement to entail three conditions (1) That all sequences of possible measures do not converge in probability to a measure satisfying invariance and continuity conditions. (2) That the process of convergence is incomplete. (3) That the use of a single measure is inadmissible. Over-measurement represents anchoring to evaluations which are not measures. Instead, a portfolio of possible measures should be used with weights determined by the observer. The implications of over-measurement are considered, with an application to the measurement of GDP.
ABSTRACT In this paper we consider meta-economic principles, those principles which underscore th... more ABSTRACT In this paper we consider meta-economic principles, those principles which underscore the theoretical thinking of economics. Meta-economic principles are different from laws; they relate to the principles of theory construction, to the assumptions which are implicit in theory, to the constraints imposed on theories and to the analysis and scope of theories. We identify seven meta-economic principles; self-interest, the structure of incentives, minimisation of transactions costs, rationality and time consistency, individuals as economic agents, the pricing of everything and completion of markets. These are the principles which have spanned generations of economic thinking. To illustrate the role of meta-principles in economic theory, we consider a number of articles from the Journal of Political Economy. The testability of meta-economic principles is examined, both in terms of the normative principles adopted in economic theory, and in observed economic behaviour.
The reputation of an individual is the aggregate opinion of them. Reputation is usually explained... more The reputation of an individual is the aggregate opinion of them. Reputation is usually explained by attributes of the one reputed, not the motivation of those doing the reputing. In this paper, we develop a model of reputation where the opinions are assets that leverage the reputation of others. Reputation is then determined in an imaginary market of opinion. <br><br>An opinion of an individual is assumed to be a portfolio of options on their reputation and compound options on the opinions of others. The reputation options are imaginary assets leveraging increases and decreases in expected reputation. The compound options leverage the opinions of others. Reputation options are like real options except they are options on people rather than projects. <br><br>Representing opinions as assets allows results from asset pricing theory to be invoked. We use the capital asset pricing model to determine the equilibrium leverage of an opinion. We employ a model of pricing sentiment to show that opinions and reputation exhibit overreaction and under reaction as in other assets. We adopt a model of pricing comovement to show how networks of opinion form to determine reputation. We show that arbitrary expectations of options payoffs may lead to reputation bubbles similar to asset price bubbles.<br><br>The paper provides insights as to how individuals manage reputation. Three strategies are examined. Individuals anchor opinions to attributes to increase reputation options expectations, use opinion makers to generate markets of compound options, and network to refine expectations. <br>
This essay considers the question how should regulators be regulated. To regulate is to observe, ... more This essay considers the question how should regulators be regulated. To regulate is to observe, arbitrate and equilibrate in the public interest when that interest is not well-defined. The market for regulation is incomplete; while there is a limitless demand for regulation the supply of regulation is constrained. The response to market incompleteness has been threefold; deregulation, self-regulation and whistleblowing. Whistleblowing, in particular, has conferred many insights about regulation. Whistleblowing has shown the power of the independent regulator.Regulating conflict of interest is the unifying principle of the essay. A portfolio theory of regulation is developed where a regulator manages a portfolio of the public interest; and constrains the conflict between private interests and the public interest. The theory of regulation which emerges suggests a system of regulation with four principles: (1) Regulation of conflict of interest on a case-by-case basis; (2) Regulation by incentivizing all observers; (3) Regulation using sampling and red flags; (4) Regulatory courts.
ABSTRACT We propose a theory of value relevance based on a theory of information, with foundation... more ABSTRACT We propose a theory of value relevance based on a theory of information, with foundations in the efficient markets hypothesis. Like the EMH, we consider a theory of heterogeneous information, and like the EMH, testing for value relevance becomes a joint test of market efficiency, the process of price determination and value relevance. In assuming heterogeneity of information, we permit a classification of value relevance studies into weak-form, semi-strong and strong-form value relevance, similar to the classification used by Fama (1970) in defining the EMH. As a consequence, we introduce an Efficient Accounting Hypothesis, and classify existing value relevance studies according to this hypothesis. The theory which we propose implies a recursive procedure for estimation, and we discuss the econometric implications.
Measurement is a special type of evaluation that is more exact than either opinion or estimation.... more Measurement is a special type of evaluation that is more exact than either opinion or estimation. In the social sciences, in particular, most evaluations are not measures, but rather mixtures of opinion and estimation. Over-measurement represents anchoring to evaluations which are not measures. For an over-measured characteristic, single measures are used when instead a portfolio of possible measures should be used. There are three implications. First, measurements of characteristics which depend on the overmeasured characteristic are biased. Secondly, decisions which depend on the overmeasured characteristic are biased. Thirdly, over-measurement biases the measurement of uncertainty.
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