Decision Making & Negotiations

This chapter discusses Markov Chain Monte Carlo (MCMC) based methods for estimating continuous-time asset pricing models. We describe the Bayesian approach to empirical asset pricing, the mechanics of MCMC algorithms and the strong theoretical underpinnings of MCMC algorithms. We provide a tutorial on building MCMC algorithms and show how to estimate equity price models with factors such as stochastic expected returns, stochastic volatility and jumps, multi-factor term structure models with stochastic volatility, time-varying central tendancy or jumps and regime switching models.

We develop a model for the competitive interactions in service industries where firms cater to multiple customer classes or market segments with the help of shared service facilities or processes so as to exploit pooling benefits. Different customer classes typically have distinct sensitivities to the price of service as well as the delays encountered.

This chapter considers several important areas of response (or nonresponse) of banking regulation to the crisis. I begin with an overview of the causes of the crisis and the ways in which the crisis has highlighted the need for regulatory reform. I review the prospects for the reform of regulatory content. I also consider and evaluate the potential changes in the structure of regulation and supervision coming out of the crisis.

The diffusion of an innovation is governed by, among other things, word of mouth. In social systems, growth processes are considered strongly influenced by people who have large number of ties to other people. In the social network literature, such people are called influentials, opinion leaders, mavens, or sometimes hubs. Furthermore, when the marketing literature addresses such people, the focus is typically not on how they influence the overall market but rather on either assessing their influence on people they are in direct contact with or identifying their characteristics.

Cross-selling is becoming an increasingly prevalent practice in call centers, due, in part, to its unique capability to allow firms to dynamically segment their callers and customize their product offerings accordingly. This paper considers a call center with cross-selling capability that serves a pool of customers that are differentiated in terms of their revenue potential and delay sensitivity. It studies the operational decisions of staffing, call routing, and cross-selling under various forms of customer segmentation.

We develop a competitive pricing model which combines the complexity of time-varying demand and cost functions and that of scale economies arising from dynamic lot sizing costs. Each firm can replenish inventory in each of the T periods into which the planing horizon is partitioned. Fixed as well as variable procurement costs are incurred for each procurement order, along with inventory carrying costs. Each firm adopts, at the beginning of the planning horizon, a (single) price to be employed throughout the horizon.

Social commerce is an emerging trend in which online shops create referral hyperlinks to other shops in the same online marketplace. We study the evolution of a social commerce network in a large online marketplace. Our dataset starts before the birth of the network (at which points shops were not linked to each other) and includes the birth of the network. The network under study exhibits a typical power-law degree distribution. We empirically compare a set of edge formation mechanisms (including preferential attachment and triadic closure) that may explain the emergence of this property.

This chapter examines how the original tenets of the affect-as-information hypothesis can be extended to explain a wide range of judgment phenomena, especially with respect to consumer decision making. To this end, research within social psychology as well as research from other fields such as consumer behavior and behavioral decision making is reviewed. The chapter is organized into three main sections. The first section identifies distinct types of information that people seem to derive from their feelings.

Recent empirical evidence supports the view that the income process has an individual-specific growth rate component [Baker (1997), Guvenen (2007b), and Huggett, Ventura, and Yaron (2007)]. Moreover, the individual-specific growth component may be stochastic. Motivated by these empirical observations, I study an individual's optimal consumption-saving and portfolio choice problem when he does not observe his income growth. As in standard income fluctuation problems, the individual cannot fully insure himself against income shocks.