1. Availability Cascades and Risk Regulation by Timur Kuran (Duke University – Department of Economics) and Cass Sunstein (Harvard Law School)
This paper came about through serendipity: Timur Kuran was visiting at the University of Chicago, and I was a great admirer of his, and we became fast friends. We had a shared interest: the relationship among behavioral science, politics, belief formation, and law. We noticed that psychological work on the availability heuristic had not been brought into contact with social influences, and in particular with then-recent thinking about informational cascades and reputational cascades. Viola: availability cascades. Because I was especially interested in risk regulation, that became a natural for us.
In a way, we had no idea what was coming. The rise of the internet, and of social media, has shown the power of availability cascades, in ways that we could not have anticipated. Also, our focus on risk regulation disciplined the paper, which was good, but allowed us only to glimpse at potential applications, for example in religious and ethnic strife, in authoritarian regimes, in massive and abrupt social movements. We have planned, periodically, to do a book on all this (or perhaps two) – and we are hoping to gear up pretty soon. – Cass Sunstein
3. A Brief Introduction to the Basics of Game Theory by Matthew O. Jackson (Stanford University – Department of Economics)
4. Why Do Some Terrorist Attacks Receive More Media Attention Than Others? by Erin Kearns (Georgia State University – College of Arts and Sciences) and Allison Betus (Georgia State University) and Anthony Lemieux (Georgia State University – Global Studies Institute)
Terrorist attacks often dominate news coverage as reporters seek to provide the public with information about the event, its perpetrators, and the victims. Yet, not all incidents receive equal attention. Why do some terrorist attacks get extensive media coverage, while others get less or even no coverage? Building from previous research on biases in entertainment and news media, we expect that the perpetrator’s social identity is a driving factor behind this discrepancy. Drawing from our own research and that of colleagues, we also expect that media coverage would be influenced by the type of target and the number of fatalities. We also expect that perpetrators who are arrested will receive more coverage, particularly as their case moves through the criminal justice system.
To test our argument, we looked at media coverage for all terror attacks within the United States between 2006 and 2015 (this has been updated since the original working paper was posted on SSRN). The Global Terrorism Database (GTD) provides systematic, unbiased coding of terrorism around the world from 1970 to 2015. We draw from the GTD’s coding to identify 136 terrorism incidents that meet their definition and thus should be reported on as such in the media. Media coverage came from two sources: LexisNexis and CNN.com. We limited coverage to US-based sources between the date of the attack and the end of 2016. To be included in our dataset, the primary focus of the article had to be the event, the perpetrator(s), or the victim(s). We identified 3,541 articles on the 136 events.
Using negative binomial regression, we estimated models to test our argument and compared it to a number of counterarguments. We found that Muslim perpetrators receive over 350% more coverage, even when controlling for target type, fatalities, and being arrested. In terms of relative effects, a non-Muslim would have to kill about seven more people than a Muslim to receive the same degree of coverage on average. The Boston Bombing and the Fort Hood shooting comprised nearly 25% of all media coverage in our dataset, which raises concerns that these incidents are driving our results. We estimated models without these cases and the results were approximately the same, yet the impact of a Muslim perpetrator was actually a bit larger. Our findings were robust against additional counterarguments including the attack: occurring near a significant date, targeting Muslims or minorities more broadly, having an unknown perpetrator and group, accounting for casualties, and not meeting all criteria of the GTD’s definition. In sum, the media disproportionately covers attacks when the perpetrator is Muslim. This may have important implications for how Americans think and feel about both terrorism threats and the Muslim community. To better understand media coverage of terrorism, we are building from the current project to explore factors that impact whether or not “terrorism” and “terrorist” are used to describe incidents and their perpetrators. – Allison Betus
5. Historical Returns of the Market Portfolio by Ronald Doeswijk (Independent) and Trevin Lam (Rabobank) and Laurens Swinkels (Erasmus University Rotterdam (EUR))
This study maps 56 years of annual returns for the GMP by composing a new and unique dataset that basically comprises all assets in which financial investors have invested. Our sample from 1960 through 2015 covers an inflationary and a disinflationary environment, seven recessions as well as several crises. Composing this unique dataset also involved hard core data collection from dusty, now yellow, OECD books in the basement of the library of Erasmus University in Rotterdam. These books are invaluable since the data have not been processed digitally. Only by flipping through the pages of the books, shooting pictures of the relevant pages and processing these data manually, we were able to produce the results in this paper.
We believe this study to be valuable for several reasons. First, from a theoretical point of view, by combining the risk-free asset with the optimal portfolio on the efficient frontier we are able to construct the Capital Allocation Line. Every possible portfolio on this line has an ex-ante superior risk-adjusted expected return compared to other portfolios on the efficient frontier. Second, we aim to estimate the historical returns of the invested market portfolio as closely as possible, and therefore one could see our return series as a benchmark return for the multi-asset investor. Third, this new data enables an extensive analysis of return and risk characteristics of the global market portfolio and the asset categories over the period 1960 to 2015.
Some key findings in our study are that the global market portfolio realizes a compounded real return of 4.38% with a standard deviation of 11.6% in our sample period. Next, the reward for the average investor is a compounded return of 3.24%-points above the saver’s. Finally, we show that with simple alternative heuristic allocation schemes it is possible to achieve a better reward for risk, in particular for downward risk. We conclude that all investors together did a reasonable job in determining the global market portfolio, but there is room for improvement.
We are looking forward to conduct more research on strategic allocation in the future to add valuable studies to the academic literature! – Trevin Lam