Uncertainty Aversion and Business Condition

Hyo Seob Lee,Tong Suk Kim 한국재무학회 2007 한국재무학회 학술대회 Vol.2007 No.04

This thesis focuses on uncertainty which begins with Knightian Uncertainty. First we introduce a concept of time-varying uncertainty aversion. We find that uncertainty aversion is increasing before the crash and is resolved after the crash, and tends to move together with S&P 500. Second we present a relationship between uncertainty aversion and business condition. We construct a VECM regression and Granger Causality tests. Using credit spread and term spread as indicators of business conditions, we find some interesting results: (1) Uncertainty aversion has significant positive relationship with credit spreads in United States. (2) Uncertainty aversion has no significant relationship with term-spreads. (3) Uncertainty aversion granger causes both credit spreads and term spreads. This implies that with uncertainty aversion we can explain the credit spread puzzle as well as we can predict future business conditions. If today ’s uncertainty increases, tomorrow’s business condition will be worse, and if today’s uncertainty decreases or is resolved, tomorrow’s business condition will be better.

Uncertainty Analysis for Mean Flow Velocity and Discharge Measurements using Floats based on Large-Scale Experiments

안명희,윤병만,지운 대한토목학회 2019 KSCE JOURNAL OF CIVIL ENGINEERING Vol.23 No.8

The uncertainty of flow measurements obtained by the float method is evaluated following the international organization for standardization (ISO) 748 guideline. However, the standard uncertainty of an average flow rate has not been considered and the quantitative uncertainty has never been computed for flow measurements made using the float method. Therefore, in this study, a stream-scale experiment was performed to estimate the standard uncertainty of the mean flow velocity by considering the flow velocity uncertainty of floats. The results demonstrated that the standard uncertainty of the mean flow velocity measured by a surface float was 15.30%, while that measured by a rod float having a 50-cm draft was 11.05%. Through these results, the measurement uncertainty of discharge was evaluated according to the GUM (guide for the expression of uncertainty in measurement) method. The measurement uncertainty was then evaluated considering the standard uncertainty of the mean flow velocity. The measurement uncertainty of the discharge was increased by 3.4% as compared with that calculated without considering the standard uncertainty.

ON THE EFFECT OF EMOTIONAL UNCERTAINTY ON PREDICTED UTILITY AND FORECASTING ERROR: THE UNCERTAINTY-PREDICTION ASYMMETRY (UPA) HYPOTHESIS

Athanasios Polyportis,Flora Kokkinaki 글로벌지식마케팅경영학회 2018 Global Marketing Conference Vol.2018 No.07

The present research examines the Uncertainty-Prediction Asymmetry (UPA) hypothesis, that low certainty incidental emotions, compared to their high certainty counterparts, lead to utility overprediction and to lower forecasting error. Introduction Cognitive appraisals of emotion have been included in the state-of-the-art theory of emotion and decision-making (Lerner & Keltner, 2000; Lerner, Li, Valdesolo, & Kassam, 2015). For instance, Tiedens & Linton (2001) discuss how happiness involves appraisals of high certainty, and sadness involves appraisals of low certainty. In terms of forecasting, systematic processing is generally considered to lead to less forecasting error compared to heuristic processing. Tiedens & Linton (2001) argue that, if accuracy is the ultimate goal the individual needs to rely on more thoughtful processes. Seeking a state of certainty is more cognitively engaging and requires more cognitive resources. But how do people predict future utilities in the first place? Theoretical background Kahneman & Thaler (2006) analyze forecasting as a two-step procedure, encompassing a current prediction as well as a future event. Breaking down the present and future situation allows researchers to assess accuracy and detect how errors occur. Kahneman & Snell (1992) report that people tend to underpredict future utilities. Typically, the experienced utility is higher (i.e. more liked or less disliked) compared to the earlier prediction. In the present paper we argue that emotional uncertainty leads to utility overprediction and thus reduces forecasting error. This hypothesis is in line with the Appraisal-Tendency Framework (ATF-overview in Lerner et al., 2015). According to the ATF, an emotion may trigger a cognitive predisposition to assess future events in line with the central appraisal dimensions that triggered that emotion. Such appraisals provide a perceptual schema for interpreting subsequent situations. In the context of the present research, the certainty-uncertainty cognitive appraisal is hypothesized to trigger a predisposition that affects the utility prediction mechanism and leads to utility overprediction. This hypothesis is also in line with the uncertainty intensification hypothesis (Bar-Anan, Wilson, & Gilbert, 2009), according to which the uncertainty of experienced emotions makes unpleasant events more unpleasant and pleasant events more pleasant. The present research examines an Uncertainty-Prediction Asymmetry (UPA) hypothesis. In three experimental studies we test the hypotheses that low certainty incidental emotions, compared to their high certainty counterparts, lead to utility overprediction (H1) and to lower forecasting error (H2). Emotional certainty, as an appraisal dimension of emotions, is expected to create a prediction asymmetry through its effect on both predicted utility and forecasting error. The mediating role of heuristic processing in the relationship between emotional certainty and forecasting error is also investigated. Experiment 1 The first experiment examines the hypothesis that low emotional certainty leads to utility overprediction (H1). Eighty postgraduate students were randomly assigned to a high emotional certainty (disgust) vs. a low emotional certainty (fear) condition. Emotion induction involved exposure to pretested video clips (see Han et al., 2012). Following this manipulation, the experimental utility (a small candy bar) was distributed and participants were encouraged to consume it (see Kahneman & Snell, 1992). They were then asked to report on 13-point scales how much they liked the utility and to predict how much they would like it in the future consumption occasion (a week later). The results revealed a significant difference in predicted utility between the high (M = 2.22, SD = 1.33) and low (M =3.65, SD = 1.37) emotional certainty conditions (F = 4.43, p = 0.04, partial eta squared = 0.10). Experiment 2 The second experiment includes a “future event”, that is measures of the utility that was originally predicted, in order to also estimate forecasting error. The experiment therefore tests if (a) the main effect of emotional uncertainty on predicted utility is confirmed (H1) and (b) there is a significant main effect of emotional uncertainty on forecasting error (H2). In addition, this experiment examines whether these effects are independent of the valence appraisal dimension of emotions. Given that Experiment 1 involved two negatively valenced emotions, emotional valence (positive vs. negative) was included in the experimental design. Seventy three postgraduate students participated in a five-consecutive-days experiment. During the first day, participants were randomly assigned to a fear (negative valence, low certainty), disgust (negative valence, high certainty), hope (positive valence, low certainty) or happiness (positive valence, high certainty) condition. Specifically, participants were asked to report an experience in which they had felt this particular emotion through an Autobiographical Emotional Memory Task (AEMT) (as in Smith & Ellsworth, 1985). Following this experimental manipulation, the experimental utility (a small chocolate bar) was distributed and they were again encouraged to consume. Subsequently, they were asked to rate how much they liked and how much they would like the utility on the fifth day. Depth of processing was assessed with four items (α=0.77), adjusted from Griffin et al. (2002). Specifically, these items measured the heuristic processing performed during the prediction process. Participants were contacted again on each of the remaining four days and were asked to consume the utility and to complete a short questionnaire (comprising ratings of the consumption experience and of the predicted utility on the fifth day). The results reported here involve only the data obtained on the first and final day of the experiment, and the forecasting error was estimated as the difference between the experienced utility of the last day and the predicted utility of the first day. In line with hypothesis H1, emotional certainty had a significant main effect on predicted utility (F = 6.18, p = 0.002, partial eta squared = 0.08). Specifically, predicted utility in the low emotional certainty condition was higher (M = 2.69, SD = 1.09), compared to that of the high certainty condition (M = 0.78, SD = 1.66). There was no significant interaction effect between certainty and valence. These findings provide further support for our H1 and indicate that emotional certainty influences utility prediction irrespective of the valence of incidental emotions. Moreover, a significant main effect of certainty on forecasting error was observed (F = 4.16, p = 0.045, partial eta squared = 0.06). Forecasting error was lower in the low certainty condition (M = 0.59, SD = 1.28) compared to the high certainty condition (M = 2.19, SD = 1.48). There was no significant interaction effect. Moreover, a mediation analysis revealed that heuristic processing mediated the effect of certainty on forecasting error (p**<0.05). Experiment 3 The previous two experiments indicate that the effects of incidental emotional states on predicted utility and forecasting error may be due to the certainty-appraisal dimension of these emotional states. A possible criticism and an inherent limitation of Experiments 1 and 2 might lie on the possibility that these effects are not independent of the other appraisal dimensions. This is related to a key methodological issue. In Experiments 1 and 2, the induced emotions were different in terms of certainty or uncertainty, but these emotions might have differed in other ways and across other appraisal dimensions as well. To eliminate this possibility and to strengthen our argument, we employ here a manipulation of the certainty appraisal of the same emotion. We therefore compare predicted utility and forecasting error in the same emotional state under conditions of low and high certainty. In Experiments 1 and 2 the emotions induced are strong representatives of each side of the certainty appraisal dimension. However, emotions located in the middle of this dimension provide an interesting opportunity since they might allow us to compare their effects when they are associated with lower or higher levels of certainty. In this experiment we have chosen to focus on the emotional state of sadness. Sadness was selected because it is near the middle of the certainty-uncertainty dimension (Smith & Ellsworth, 1985). Similar manipulations of sadness have been reported in the literature (Tiedens & Linton, 2001). Sixty postgraduate students were randomly assigned to a low vs. high certainty sadness condition. High certainty participants were asked to recall and report an experience or event in which they had felt high certainty sadness (i.e. during which they understood what was happening and could predict what was going to happen next), through an Autobiographical Emotional Memory Task (AEMT) as in Experiment 2. Similarly, low certainty participants were asked to recall and report an event or experience that had generated low certainty sadness. Following the experimental manipulation, the experimental utility (a small chocolate bar) was served. Participants were again encouraged to consume some of it and were asked to complete 13-point ratings of how much they liked it and how much they would like it in the future occasion (a week later). Eight items (α=0.81), adapted from Griffin et al. (2002), measured the heuristic processing performed during the prediction process. Participants also completed ten items adjusted from PANAS questionnaire (Watson et al., 1988). A week later, participants consumed the utility and completed a short questionnaire. The results revealed a significant main effect of certainty on the predicted utility (F = 4.00, p = 0.05, partial eta squared = 0.06). Predicted utility in the low certainty sadness condition was higher (M = 4.21, SD = 1.55) compared to that of the high certainty condition (M = 3.35, SD = 1.78). A significant main effect of certainty on forecasting error was also observed (F = 5.04, p = 0.03, partial eta squared = 0.10). Forecasting error in the low certainty condition (M = -0.10, SD = 1.65) was lower compared to that of the high certainty condition (M = 1.02, SD = 1.81). A mediation analysis revealed that heuristic processing again mediated the effect of certainty on forecasting error (p**<0.05). Conclusion The contribution of this research is mostly highlighted by the counter-intuitive findings that lower certainty emotions lead to judgment with higher accuracy, as well as to an overprediction of utilities, related to their certainty counterparts. Therefore, the current findings provide support for the proposed Uncertainty-Prediction dual Asymmetry (UPA) hypothesis. Future research needs to corroborate these findings, to clarify the mechanisms underlying the observed asymmetry and to identify boundary conditions.

Uncertainty estimation of the SURR model parameters and input data for the Imjin River basin using the GLUE method

Bae, Deg-Hyo,Trinh, Ha Linh,Nguyen, Hoang Minh Elsevier 2018 JOURNAL OF HYDRO-ENVIRONMENT RESEARCH Vol.20 No.-

<P>This study investigated the flow simulation uncertainty caused by the model parameters and input data for the Imjin River basin using the generalized likelihood uncertainty estimation (GLUE) method and the Sejong University rainfall-runoff (SURR) model for four events during 2007, 2008, 2009 and 2010. Based on the nonsystematic errors caused by the rainfall interpolation process, the input uncertainty was estimated and compared with the model parameter uncertainty for the regions with different data information situations. The reasons for the high or low uncertainty of the model parameters and input were also analyzed. Two indices were used to examine the uncertainty of the streamflow simulation: the ratio of the number of observations falling inside the uncertainty interval (p - factor) and the width of the uncertainty interval (r - factor). The results indicated that the uncertainty of the streamflow simulation of the northern area (Gunnam station) was significantly higher than that of the southern areas (Jeonkok and Jeogseong stations) for both model parameter and input uncertainty. In the southern areas, the parameter uncertainty was higher than the input uncertainty. However, the northern area exhibited the opposite trend, with the former being lower than the latter. Additionally, the uncertainty was also shown in the time of the hydrograph. The uncertainty at the peak flow was higher than that at the beginning or the end of each event.</P>

Understanding uncertainty in medicine : concepts and implications in medical education

Kangmoon Kim,Young-Mee Lee 한국의학교육학회 2018 Korean journal of medical education Vol.30 No.3

In an era of high technology and low trust, acknowledging and coping with uncertainty is more crucial than ever. Medical uncertainty has been considered an innate feature of medicine and medical practice. An intolerance to uncertainty increases physicians’ stress and the effects of burnout and may be a potential threat to patient safety. Understanding medical uncertainty and acquiring proper coping strategies has been regarded to be a core clinical competency for medical graduates and trainees. Integrating intuition and logic and creating a culture that acknowledges medical uncertainty could be suggested ways to teach medical uncertainty. In this article, the authors describe the concepts of medical uncertainty, its influences on physicians and on medical students toward medical decision making, the role of tolerance/intolerance to uncertainty, and proposed strategies to improve coping with medical uncertainty.

Measurement uncertainty evaluation with correlation for dynamic tensile properties of auto-body steel sheets

Choi, M.K.,Huh, H.,Jeong, S.,Kim, C.G.,Chae, K.S. Pergamon Press ; Elsevier Science Ltd 2017 International journal of mechanical sciences Vol.130 No.-

This paper is concerned with evaluation of the measurement uncertainty of true stress-true strain curves of auto-body steel sheets at various strain rates considering correlation of input quantities. The measurand is defined as the true stress at strain rates ranging from 1 to 100s<SUP>-1</SUP>. The true stress has a functional relation with the tensile load, the initial width and the initial thickness, the initial and deformed length of a specimen. Since the initial and deformed lengths of a specimen are measured by the exactly same procedure, the two quantities are correlated and considered in the uncertainty evaluation model. An analytic model to evaluate the measurement uncertainty is established properly by considering the correlation with the guidelines suggested by the GUM, ISO/IEC Guide 98-3. The standard uncertainties of the input quantities and influence factors are evaluated for dynamic tensile properties of DDQ, TRIP980, and TRIP1180 steel sheets as well as the covariance associated with the correlated input quantities. The standard uncertainty of the true stress is also evaluated to consider the change of the strain rate during the test. The combined standard uncertainty is then evaluated including standard uncertainties of the input quantities and influence factors. The expanded uncertainty is obtained by choosing an appropriate coverage factor. The absolute amount of the measurement uncertainty decreases with consideration of the correlation between the initial and deformed length since their uncertainty contributions are almost canceled during the calculation of combined uncertainty. Finally, the reliability of dynamic tensile properties of auto-body steel sheets is presented with a statement of the expanded uncertainty.

Option-Implied Preferences with Model Uncertainty

Byung Jin Kang,Tong Suk Kim,Hyo Seob Lee 한국재무학회 2010 한국재무학회 학술대회 Vol.2010 No.05

This paper constructs an equilibrium model of option-implied preferences with model uncertainty. Our theoretical model shows that an investor with model uncertainty has a higher level of risk aversion than an investor without model uncertainty, which is helpful in explaining the equity premium puzzle. Using the detection-error probabil- ity, we estimate the option-implied uncertainty aversion. Empirical ¯ndings show that the estimated option-implied risk aversion with model uncertainty is larger than that without model uncertainty. With the higher level of uncertainty aversion, the empirical uncertainty premium shows the steeper smirk pattern across the wealth, which looks very similar to the smirk pattern of the implied volatility of S&P 500 index options.

Does Economic Policy Uncertainty Affect Mergers and Acquisitions in Korea? – Implications on Foreign Exchange Policy Uncertainty

Su-Kyu Park,Kyu-Seob Yu,Jin-Hyung Cho 한국재무학회 2023 한국재무학회 학술대회 Vol.2023 No.11

Our study analyzes whether economic policy uncertainty influences firms’ mergers and acquisition (M&A) in Korea. Employing economic policy uncertainty proxies proposed by Baker et al. (2016), and Cho and Kim (2023) which concentrate on Korean market, we observe the effect of both overall and categorical-specific index on firms’ decisions – namely, exchange policy uncertainty, fiscal policy uncertainty, monetary policy uncertainty and trade policy uncertainty. Our results are summarized as following. First, among categoricalspecific indices, foreign exchange uncertainty is shown to have negative effect on firms’ M&A decision at statistically significant level. Second, among a variety of industry sectors, the effect of foreign exchange uncertainty is statistically significant for only manufacturing and construction deals, in contrast with non-manufacturing industry in which statistically significance was not found. Lastly, the negative effect of foreign exchange policy uncertainty is found in a variety of firm setting and conditions, including foreigner’s stock ownership, and both vertical and horizontal acquisition.

돼지고기 중 플루벤다졸 잔류분석의 불확도 추정

김미경,박수정,임채미,조병훈,권현정,김동규,정갑수,Kim, MeeKyung,Park, Su-Jeong,Lim, Chae-Mi,Cho, Byung-Hoon,Kwon, Hyun-Jeong,Kim, Dong-Gyu,Chung, Gab-Soo 대한수의학회 2007 大韓獸醫學會誌 Vol.47 No.2

Measurement uncertainty could play an important role in the assessment of test results in laboratories and industries. We investigated measurement uncertainties possibly included in determination of flubendazole, a benzimidazole anthelmintic, in pork by HPLC. The concentration of flubendazole was 62.69 ng/g in a sample of pork. Uncertainty was estimated in the analytical procedure of flubendazole. A model equation was made for determination of flubendazole in pork. The four uncertainty components such as weight of sample, volume of sample, calibration curve, and recovery were selected to estimate measurement uncertainties. Standard uncertainty was calculated for each component and all the standard uncertainties were combined. The combined standard uncertainty was expanded to a sample population as an expanded uncertainty. The expanded uncertainty was calculated using k value on Student's t-table and effective degrees of freedom from Welch-Satterthwaite formula. The expanded uncertainty was calculated as 3.45 with the combined standard uncertainty, 1.584 6 and the k value, 2.18. The final expression can be ($62.69{\pm}3.45$) ng/g (confidence level 95%, k = 2.18). The uncertainty value might be estimated differently depending on the selection of the uncertainty components. It is difficult to estimate all the uncertainty factors. Therefore, it is better to take several big effecting components instead of many small effecting components.

불확실성이 집합행동 딜레마에 미치는 영향

김태은 한국행정학회 2019 韓國行政學報 Vol.53 No.1

This study examines the effect of uncertainty on collective action dilemmas in public goods games. Specifically, a total of 24 public goods games in type I and type II designs were played to test a set of five hypotheses on uncertainty in the size of public goods and uncertainty in the level of punishment. The results show that under the same level of punishment, there is no strong effect of uncertainty in the size of public goods on collective action dilemmas. However, under the same size of public goods, there is a strong effect of uncertainty in the level of punishment on collective action dilemmas: for all conditions of experiments, when punishment was certain, participants contributed more to the public accounts than when punishment was uncertain. The findings also indicate that in the presence of uncertainty factors, the factor rather than the degree of uncertainty is more important in affecting the contribution to public goods. There is a difference in the effect of uncertainty between the size of public goods and the level of punishment: the effect of uncertainty in the level of punishment is greater than that of uncertainty in the size of public goods. Finally, an increase in the scope and strength of punishment causes a reduction in collective action dilemmas under uncertainty. Such findings provide a new experimental perspective on the relationship between uncertainty and the collective action dilemma, which has not been explained satisfactorily, and useful policy implications for the provision of public goods. 본 연구는 불확실성이 집합행동 딜레마에 어떠한 영향을 미치는지를 분석하고자 했다. 구체적으로 ‘공공재 규모의 불확실성’과 ‘처벌의 불확실성’과 관련된 5 가지 연구가설을 ‘제 1유형’과 ‘제 2유형’으로 설계한 총 24회의 공공재 게임을 통해 검증하고자 하였다. 분석 결과, 첫째, 처벌 조건이 동일할 때, 공공재 규모의 불확실 여부가 집합행동 딜레마에 미치는 영향은 강건하지 않았다. 둘째, 공공재 규모의 조건이 동일할 때, 처벌의 불확실성이 집합행동 딜레마에 미치는 영향은 매우 강건하여 모든 실험조건에서 처벌이 확실할 때가 처벌이 불확실할 때보다 공공계정 기여가 높았다. 셋째, 불확실성 요인이 존재할 때, 불확실성의 개수보다 불확실성의 요인이 무엇인가가 더욱 중요함을 알 수 있다. 넷째, 두 가지 불확실성 요인이 서로 동일한 수준으로 영향을 미치는 것이 아니라 처벌의 불확실성이 공공재 규모의 불확실성보다 더욱 크게 영향을 미쳤다. 다섯째, 처벌의 범위와 강도를 높이면, 불확실성하에서 집합행동 딜레마가 크게 완화되었다. 이러한 분석결과는 설명의 대상으로 남아있던 불확실성과 집합행동 딜레마의 관계를 새로운 실험설계를 통해 설명하고 있고 현실적으로 유용한 정책적 함의를 제시한다는 점에서 가치를 지니고 있다.