The ratio bias phenomenon: fact or artifact?

The ratio bias—according to which individuals prefer to bet on probabilities expressed as a ratio of large numbers to normatively equivalent or superior probabilities expressed as a ratio of small numbers—has recently gained momentum, with researchers especially in health economics emphasizing the policy importance of the phenomenon. Although the bias has been replicated several times, some doubts remain about its economic significance. Our two experiments show that the bias disappears once order effects are excluded, and once salient and dominant incentives are provided. This holds true for both choice and valuation tasks. Also, adding context to the decision problem does not alter this finding. No ratio bias could be found in between-subject tests either, which leads us to the conclusion that the policy relevance of the phenomenon is doubtful at best.

Impact of the North Atlantic Oscillation on transatlantic flight routes and clear-air turbulence

The variation of wind-optimal transatlantic flight routes and their turbulence potential is investigated to understand how upper-level winds and large-scale flow patterns can affect the efficiency and safety of long-haul flights. In this study, the wind-optimal routes (WORs) that minimize the total flight time by considering wind variations are modeled for flights between John F. Kennedy International Airport (JFK) in New York, New York, and Heathrow Airport (LHR) in London, United Kingdom, during two distinct winter periods of abnormally high and low phases of North Atlantic Oscillation (NAO) teleconnection patterns. Eastbound WORs approximate the JFK–LHR great circle (GC) route following northerly shifted jets in the +NAO period. Those WORs deviate southward following southerly shifted jets during the −NAO period, because eastbound WORs fly closely to the prevailing westerly jets to maximize tailwinds. Westbound WORs, however, spread meridionally to avoid the jets near the GC in the +NAO period to minimize headwinds. In the −NAO period, westbound WORs are north of the GC because of the southerly shifted jets. Consequently, eastbound WORs are faster but have higher probabilities of encountering clear-air turbulence than westbound ones, because eastbound WORs are close to the jet streams, especially near the cyclonic shear side of the jets in the northern (southern) part of the GC in the +NAO (−NAO) period. This study suggests how predicted teleconnection weather patterns can be used for long-haul strategic flight planning, ultimately contributing to minimizing aviation’s impact on the environment

Are mortgage lenders guilty of the housing bubble? A UK perspective

Existing theoretical models of house prices and credit rely on continuous rationality of consumers, an assumption that has been frequently questioned in recent years. Meanwhile, empirical investigations of the relationship between prices and credit are often based on national-level data, which is then tested for structural breaks and asymmetric responses, usually with subsamples. Earlier author argues that local markets are structurally different from one another and so the coefficients of any estimated housing market model should vary from region to region. We investigate differences in the price–credit relationship for 12 regions of the UK. Markov-switching is introduced to capture asymmetric market behaviours and turning points. Results show that credit abundance had a large impact on house prices in Greater London and nearby regions alongside a strong positive feedback effect from past house price movements. This impact is even larger in Greater London and the South East of England when house prices are falling, which are the only instances where the credit effect is more prominent than the positive feedback effect. A strong positive feedback effect from past lending activity is also present in the loan dynamics. Furthermore, bubble probabilities extracted using a discrete Kalman filter neatly capture market turning points.