# Discussion Papers

Papers from 1998 onwards are available on-line as .PDF files.

If you would like to submit your paper to **Repec**, please email econplone@le.ac.uk

**10 Most Recent Papers**

### 17/08 Martin Foureaux Koppensteiner & Jesse Matheson & Réka Plugor

### 17/07 M**engxing Wei & ****Ali al-Nowaihi & ****Sanjit Dhami**

**Ali al-Nowaihi &**

**Sanjit Dhami**17/07 Can quantum decision theory explain the Ellsberg paradox?

We report the results of an experiment we performed to test the matching probabilities for the Ellsberg paradox predicted by the quantum decision model of al-Nowaihi and Dhami (2016). We fi…nd that the theoretical predictions of that model are in conformity with our experimental results. This supports the thesis that violations of classical (Kolmogorov) probability theory may not be due to irrational behaviour but, rather, due to inadequacy of classical probability theory for the description of human behaviour. Unlike earlier quantum models of the Ellsberg paradox, our model makes essential use of quantum probability. It is also more parsimonious than earlier models.

### 17/06 Dimitrios Varvarigos

17/06 Economic Growth and the Cultural Transmission of Attitudes towards Education

### 17/05 Dimitrios Varvarigos & Nikolaos Kontogiannis

17/05 Entrepreneurial Status, Social Norms, and Economic Growth

### 17/04 Arkadiusz Szydłowski

### 17/03 D.S.G. Pollock

17/03 Stochastic processes of limited frequency and the effects of oversampling

### 17/02 D.S.G. Pollock

17/02 Trends Cycles And Seasons: Econometric Methods Of Signal Extraction

Alternative methods of trend extraction and of seasonal adjustment are described that operate in the time domain and in the frequency domain. The time-domain methods that are implemented in the TRAMO–SEATS and the STAMP programs are compared. An abbreviated time-domain method of seasonal adjustment that is implemented in the IDEOLOG program is also presented. Finite-sample versions of the Wiener–Kolmogorov filter are described that can be used to implement the methods in a common way. The frequency-domain method, which is also implemented in the IDEOLOG program, employs an ideal frequency selective filter that depends on identifying the ordinates of the Fourier transform of a detrended data sequence that should lie in the pass band of the filter and those that should lie in its stop band. Filters of this nature can be used both for extracting a low-frequency cyclical component of the data and for extracting the seasonal component.

### 17/01 D.S.G. Pollock

A variety of filters that are commonly employed by econometricians are analysed with a view to determining their effectiveness in extracting well-defined components of economic data sequences. These components can be defined in terms of their spectral structures—i.e. their frequency content—and it is argued that the process of econometric signal extraction should be guided by a careful appraisal of the periodogram of the detrended data sequence. Whereas it is true that many annual and quarterly economic data sequences are amenable to relatively unsophisticated filtering techniques, it is often the case that monthly data that exhibit strong seasonal fluctuations require a far more delicate approach. In such cases, it may be appropriate to use filters that work directly in the frequency domain by selecting or modifying the spectral ordinates of a Fourier decomposition of data that have been subject to a preliminary detrending.

### 16/20 Sanjit Shami & Ali al-Nowaihi

16/20 Social responsibility, human morality and public policy

The evidence shows that in many important economic domains, many people are either predisposed to engage in ‘socially responsible actions ’and/or required by regulations to do so. Examples include pollution abatement activity, behavior in a commons, and contributions to charity. We propose a general framework of analysis for modelling such actions and the role of public policy in encouraging these actions in an equilibrium setting. Multiple equilibria are endemic in these situations. We show that it is possible to conduct interesting and meaningful analysis in the presence of multiple equilibria. We examine the role of optimal public policy such as subsidies, taxes and direct government grants in engineering moves from less tomore desirable equilibria. We highlight a new role for leadership contributions in facilitating moves between multiple equilibria. We also conduct a welfare analysis of the optimal mix between private and public actions.

### 16/19 Heather D. Gibson & Stephen G. Hall & George S. Tavlas

16/19 Measuring Systemic Stress in European Banking Systems*

We construct a measure of systemic risk in selected EU banking systems using an indirect measure of the system covariance which is also time-varying. We proceed to examine to what extent the resulting measures of systemic stress provide a convincing narrative of events during the period January 2000 to March 2016. The results provide evidence of: (i) rising stress prior to the outbreak of the international financial crisis in 2007/08 in countries with banks exposed to toxic assets; (ii) stress associated with the euro area sovereign debt crisis from 2009/10; and (iii) continued concerns from 2013 out the need for euro area banks to clean up their balance sheets and raise new capital at a time of sluggish profitability.

During the euro-area financial crisis, interactions among sovereign spreads, sovereign credit ratings, and bank credit ratings appeared to have been characterized by self-generating feedback loops. To investigate the existence of feedback loops, we consider a panel of five euro-area stressed countries within a three-equation simultaneous system in which sovereign spreads, sovereign ratings and bank ratings are endogenous. We estimate the system using two approaches. First we apply GMM estimation, which allows us to calculate persistence and multiplier effects. Second, we apply a new, system time-varying-parameter technique that provides bias-free estimates. Our results show that sovereign ratings, sovereign spreads, and bank ratings strongly interacted with each other during the euro crisis, confirming strong doom-loop effects.

### 16/17 Sanjit Dhami & Mengxing Wei & Ali al-Nowaihi

16/17 Public goods games and psychological utility: Theory and evidence.

We consider a public goods game which incorporates guilt-aversion/surprise- seeking and the attribution of intentions behind these emotions (Battigalli and Dufwenberg, 2007; Khalmetski et al., 2015). We implement the induced beliefs method (Ellingsen et al., 2010) and a within-subjects design using the strategy method. Previous studies mainly use dictator games - whose results may not be robust to adding strategic components. We fi…nd that guilt-aversion is far more important than surprise-seeking; and that the attribution of intentions behind guilt- aversion/surprise-seeking is important. Our between-subjects analysis confirms the results of the within-subjects design.