Our daily lives are shaped by a series of decision processes, ranging from very unimportant choices to life-changing judgments. The complexity of the decision processes increases tremendously when the decision-making takes place in a social context, i.e., when other human beings are directly involved in the decision. In such conditions the decision-maker not only tries to maximize his own utility, but also needs to take into account the interdependent nature of the situation. Information about others’ preferences, characteristics, and actions play an important role, and need to be thoroughly evaluated and predicted before making a decision. In this thesis we explore the neural correlates of two different types of social decision-making.
Scholarly historical research and common-sense discussions of world affairs often emphasize foreign intervention as a major determinant of the dynamics of political institutions. For example, Theodore Roosevelt advanced in May 1904 that the U.S. had a “moral mandate” to enforce proper behavior among the nations of Latin America (this came to be called the Roosevelt Corollary to the Monroe Doctrine). Subsequent attempts to enhance “proper behavior” lead shifting U.S. governments to intervene in favor of dictatorships, to sponsor coup d’états, to support weak democracies and to encourage democratization. Foreign intervention was neither limited to Latin America, nor was it exclusive to the United States. Behind most examples of foreign intervention looms economic goals such as providing a better and more secure investment environment. Yet, the fast growing economics literature on endogenous political institutions has not provided a framework in which the role of economically motivated foreign intervention in the rise, fall and establishment of different forms of democracies and autocracies can be analyzed.
Our theoretical model provides economic foundations for political institutions in situations where international capital flows are important and where investments in other countries are of strategic significance to foreign governments. The main contribution of the paper is to inquire into the incentive of a foreign government to influence regime transitions in another country. We derive conditions under which foreign intervention plays an important role in explaining why certain forms of democracy and autocracy emerge, breakdown or consolidate.
Numerous studies, starting from Amihud and Mendelson (1986) have shown that liquidity is an important variable that affects the stock prices. Using various measures of liquidity, these studies generally support the liquidity premium theory, which provides a rationale for a trade off between return on assets and their liquidity. In general, higher rate of returns are associated with less liquid assets.. For example, using bid-ask spread as a measure of liquidity, Amihud and Mendelson (1986) show that the quoted bid-ask spread has a significant positive effect on stock returns. Similarly, Eleswarapu and Reinganum (1993) using the same quoted bid-ask spread as a proxy for liquidity find that the positive relation documented in Amihud and Mendelson is restricted only in January.
Brennan and Subrahmanyam (1996) take an innovative approach by estimating the price impact of a trade based on Kyle’s (1985) model and find that it is significantly positively related to average returns. Easley, Hvidkjaer, and O’Hara (2002) document a similar result using their measure of illiquidity called the probability of information trading, which reflects the adverse selection cost arising from information asymmetry among traders. Additional evidence on positive illiquidity-return relation is provided by Chalmers and Kadlec (1998) using the amortized bid-ask spread, by Datar, Naik, and Radcliff (1998) using share turnover, by Brennan, Chordia, and Subrahmanyam (1998) using dollar trading volume, and most recently by Hasbrouck (2003) using a liquidity proxy based on a newly created effective spread in the daily data.
