Economics Insights @ CBS

Particle learning (PL) provides state filtering, sequential parameter learning and smoothing in a general class of state space models. Our approach extends existing particle methods by incorporating the estimation of static parameters via a fully-adapted filter that utilizes conditional sufficient statistics for parameters and/or states as particles. State smoothing in the presence of parameter uncertainty is also solved as a by-product of PL. In a number of examples, we show that PL outperforms existing particle filtering alternatives and proves to be a competitor to MCMC.

The paper provides empirical evidence that strategic complementarities among investors generate fragility in financial markets. Analyzing mutual fund data, we find that, consistent with a theoretical model, funds with illiquid assets (where complementarities are stronger) exhibit stronger sensitivity of outflows to bad past performance than funds with liquid assets. We also find that this pattern disappears in funds where the shareholder base is composed mostly of large investors.

In contrast to the view that social perception has symmetric effects on judgments and behavior, the current research explored whether perspective-taking leads stereotypes to differentially affect judgments and behavior. Across three studies, perspective-takers consistently used stereotypes more in their own behavior while simultaneously using them less in their judgments of others. After writing about an African-American, perspective-taking tendencies were positively correlated with aggressive behavior but negatively correlated with judging others as aggressive.