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Decision making under risk and uncertainty
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The three chapters of my dissertation investigate decision making under risk and uncertainty. Although the papers in my dissertation cover diverse topics, they all share a common thread, the inclusion of behavioral issues in an applied microeconomics context. In the first chapter of my dissertation I use non-experimental, individual transaction gambling data, to examine the existence of positively or negatively auto-correlated betting behavior in a panel of 42,669 gamblers observed over a period of 108 consecutive days encompassing over 17 million slot machines plays. The statistical analyses suggest the existence of hot hand beliefs, as gamblers increase the amount bet after wins and decrease the amount bet after losses. These findings remain significant after proxy variables are introduced to control for other competing hypotheses such as house money effects, gambling excitement, a “heavy gamblers” effect, and rare events. Predictions of Prospect theory are also investigated in the context of gambling, by allowing players to behave differently in the domain of gains and losses. Results indicate that prospect theory predictions hold only in the domain of gains, as players increase the amount bet at a decreasing rate after accumulated wins. The second chapter investigates factors influencing the adoption of the Trichomoniasis vaccine and other management practices among Nevada ranchers by incorporating subjective measures of risk attitudes in the econometric model. I compare results from an unconstrained generalized ordered logit model with a partially constrained and a fully constrained generalized ordered logit model, in an attempt to correct for the violation of the parallel regression assumption. Results indicate that risk aversion is a significant factor in the decision of adopting the vaccine and its most powerful effect is to push respondents that have not adopted the vaccine in the past to at least consider adopting it in the future. Other factors that play a significant role are familiarity with the treatment, likelihood of cattle exposure and respondents’ optimism regarding future ranch profitability. Understanding what drives a firm’s relocation and expansion decision is critical in formulating regional economic development policies. Using individual firm level survey data, the third paper of my dissertation analyzes factors that influence past and future relocation decisions using a behavioral approach by incorporating both conventional factors, such as economic and physical infrastructure, and unconventional factors, such as employee benefits, quality of life, involvement and care for the local community etc. The business survey data used in this study is part of the ASAP (Area Sector Analysis Process) process and modeling tool, an ongoing project that assist communities in achieving sustainable economic development, by taking into consideration both community and industry preferences and goals.. Results indicate the importance of both firm internal factors, such as the number of employees, and firm external factors, such as the availability of managerial workforce and access to specialized job training programs, as important predictors of the past decision to relocate or establish additional locations.