Economics Insights @ CBS

This article considers the problem of testing curvature (e.g., linearity, concavity, convexity) in a multivariate nonparametric regression model. A measure of curvature, called the simplex statistic, that does not require bandwidth choice and is easy to compute, is introduced. A global test of curvature based on the simplex statistic is also introduced. Localized versions of the test, which require smoothing parameters, are shown to be consistent against more general alternatives than the global test.

A fictional example illustrates how interdependencies among products in the production process, and the costs associated with those interdependencies, challenge the ability of cost accounting systems to generate decision-useful product cost information. The cost interdependency in the current example is a production-line change-over cost that is incurred to retool a machine whenever the production process changes from one product to another.

This article works out a general formulation of residual income valuation. It shows how to construct valuaton functions using accounting book value, earnings, and earnings forecasts. The approach developed applies to linear as well as nonlinear valuation functions.

Using both a linear regression method and a probability-based method, we find that on average analysts place larger than efficient weights on (i.e., they over-weight) their private information when they forecast corporate earnings. We also find that analysts over-weight more when issuing forecasts more favorable than the consensus, and over-weight less, and may even under-weight, private information when issuing forecasts less favorable than the consensus.

In this paper, we examine people's appraisals of unusual objects and their intuitions about whether others will like those objects. Prior work suggests uniqueness motives (e.g., Need for Uniqueness) affect appraisals, but the effect of these motives on projection of appraisals to others is unclear. Contrary to some prior work, we argue that uniqueness motives do not govern projection of appraisals but rather that individual differences in perceived similarity to a target group do.