Simple Rules Of Thumb Research Articles

Health Cost Risk and Optimal Retirement Provision: A Simple Rule for Annuity Demand

We analyze the effect of health cost risk on optimal annuity demand and consumption/savings decisions. Many retirees are exposed to sizeable out-of-pocket medical expenses, while annuities potentially impair the ability to get liquidity to cover these costs and smooth consumption. We find that if out-of-pocket medical expenses can already be sizeable early in retirement, full annuitization is not optimal. In the other case of low health cost risk early in retirement, individuals should take advantage of the mortality credit that annuities provide and save out of the annuity income to build a buffer for health cost shocks at later ages. When comparing to empirically observed levels of annuitization, we find that high health cost risk early in retirement may resolve the annuity puzzle. Moreover, we explain the observed pattern of annuitization as a function of initial wealth at retirement. For personal financial planning purposes, we develop a simple rule of thumb for annuity demand, based on expected health cost risk early in retirement, wealth at retirement, and minimum consumption levels. We show that the welfare costs from using the rule compared to the full life cycle model are small.

A Comparison of Labour Market Responses to the Global Downturn

The global economic downturn has led to a crisis in labour markets, with an estimated 15.2 million job losses across the OECD economies, equivalent to a rise in the OECD unemployment rate from 5.5 to 8.9 per cent. Initially, the rise in unemployment appeared lower than expected. In Holland, Kirby and Whitworth (2009) we demonstrated a simple rule of thumb between output growth and the unemployment rate in the OECD as a whole, based on Okun's approach. Using a dataset that spans the period 1988–2008, regression analysis suggests that on average a 1 per cent decline in output is associated with a rise of 0.6 percentage points in the unemployment rate across the OECD economies. Between the first quarter of 2008 and the first quarter of 2009, output in the OECD economies declined by 4.8 per cent. The unemployment rate rose by 1.9 points over this period, as compared to 2.9 per cent given by the rule of thumb. However, the labour market tends to lag production. While most of the major economies started to grow again in the second or third quarters of 2009, OECD unemployment continued to rise into the final quarter of the year, with a cumulative increase in the OECD unemployment rate of 3.4 percentage points — even higher than that suggested by our rule of thumb.

Pension Plan Decisions

We examine the contribution and investment decisions made by members of a large UK‐based DC pension plan. We find that many employees appear to be relatively financially sophisticated and follow approaches consistent with economic and financial theory in terms of savings rates and investment strategies. However, there are also many less sophisticated employees who stick with plan default arrangements and/or follow simple rules of thumb in saving and investing. The challenge for corporate sponsors of pension plans is in designing arrangements and communication strategies that reduce the chances of these less sophisticated plan members making mistakes – in the sense of systematic deviations from optimal behaviour.

Assessing the Impact of Fees on Performance and Shortfall Risk in Target Date Investment Funds

Target-date investment funds are one of the fastest-growing segments in the mutual fund industry. Yet there exists only a very limited literature on their comparative risk-return characteristics. This article is the first to assess simultaneously the impact of differential fees on income accumulation and on the risk that the asset allocation inherent in target-date investment funds will generate insufficient retirement funds to furnish a minimum acceptable standard of living. The modeling framework described in this article provides a means to calculate the implied defined benefit savings rate and shortfall risk. The author finds that the opportunity cost of fees on retirement wealth accumulation is modest for aggressive target-date funds. However, for conservative funds the opportunity cost of fees can be substantial. This is a counterintuitive result. A simple rule of thumb for assessing the impact of fees on accumulated retirement wealth is also developed. The methodological framework, analysis, and results discussed in this article will help investors, plan sponsors, and policy makers better understand the risk-return characteristics of different target-date investment strategies. <b>TOPICS:</b>Performance measurement, risk management, retirement

Olfactory recognition of predators by nocturnal lizards: safety outweighs thermal benefits

Many prey species are faced with multiple predators that differ in the degree of danger posed. The threat-sensitive predator avoidance hypothesis predicts that prey should assess the degree of threat posed by different predators and match their behavior according to current levels of risk. To test this prediction, we compared the behavioral responses of nocturnal velvet geckos, Oedura lesueurii, to chemicals from 2 snakes that pose different threats: the dangerous broad-headed snake Hoplocephalus bungaroides that eats geckos and the less dangerous small-eyed snake Cryptophis nigrescens that eats skinks (i.e., does not consume geckos). We also tested whether predator avoidance by prey was modulated by thermal costs associated with retreat-site selection. In both the presence and absence of thermal costs, velvet geckos avoided crevices scented by both dangerous and less dangerous snake species. When given the choice between a crevice scented by a broad-headed snake and a crevice scented by a small-eyed snake, most geckos avoided either retreat site. These results suggest that velvet geckos treat both snake predators as equally dangerous. To further explore these results, we quantified patterns of retreat-site selection by free-living velvet geckos on 2 sandstone plateaux. As in the laboratory, velvet geckos avoided thermally suitable rocks previously used by both snake species. Hence, a gecko's choice of retreat site is influenced by the presence of snake chemicals but is independent of thermal costs or the level of danger posed by the predator. To minimize their risk of predation, geckos may use a simple rule of thumb: “all snakes are dangerous.”

Pension Plan Decisions

We examine the contribution and investment decisions made by members of a large UKbased DC pension plan. We find that many employees appear to be relatively financially sophisticated and follow approaches consistent with economic and financial theory in terms of savings rates and investment strategies. However, there are also many less sophisticated employees who stick with plan default arrangements and/or follow simple rules of thumb in saving and investing. The challenge for corporate sponsors of pension plans is in designing arrangements and communication strategies that reduce the chances of these less sophisticated plan members making mistakes – in the sense of systematic deviations from optimal behaviour.

Influence of Pattern Void on Hydroplaning and Related Target Conflicts

Abstract Performance prediction of hydroplaning via coupling of computational fluid dynamics (CFD) and FE modeling has delivered a detailed insight into the local mechanisms and root causes of hydroplaning but is still very time consuming and extensive. The goal of the present work is the development of simple rules of thumb and easy to understand models to give the tire designer a quick approach to optimize the hydroplaning performance of his design concepts including the target conflicting trade-offs. Based on the DOE study covering basic winter and summer tread patterns and tread compounds taking into account interactions, total void, longitudinal, and lateral void distributions have been varied. Experimental designs have been tested concerning longitudinal hydroplaning behavior on front and rear driven cars and lateral hydroplaning. Most important target conflicting performance criteria such as wet and dry braking, noise, rolling resistance, winter traction, and force and moment characteristics among others have been tested additionally. The existing models using hydrodynamic pressure influences have been reviewed and extended. A simple to use development tool has been programed to quantify pattern design to get a quick prediction of tire performance changes (“Void Slider”).

Coalitions in male Barbary macaques, Macaca sylvanus: strength, success and rules of thumb

Several quantitative models of coalition formation assume that a coalition is successful if the strength of the coalition is greater than the strength of the target, but unsuccessful otherwise. However, strong empirical evidence in favour of this hypothesis is still lacking. In this study, we provide an empirical test of this assumption in Barbary macaque males, by using a field-based estimate of individual competitive ability from which coalition strength is derived. Coalition success was determined for 90 coalitions composed of two partners and targeted at one male. Of these, 72.2% were behaviourally successful and 27.8% were unsuccessful. Asymmetry in strength was a significant predictor of coalition success, as this factor alone could explain up to 78.6% of coalition outcomes in the study group. Males behaved as if they were at least partially informed about the nature of this asymmetry. The targets of attacks by coalitions were more likely to counterattack as asymmetry in strength decreased, and coalition partners formed coalitions that produced on average a greater asymmetry in strength than would be expected by chance. However, we provide evidence that males may have used simple rules of thumb based on their knowledge of dyadic and third-party relationships, rather than estimates of asymmetry in strength per se. We conclude that competitive ability is an important factor in coalition formation in Barbary macaque males and discuss additional factors not included in this study, which may account for the unexplained outcomes.

Multiple ecological pathways to extinction in mammals

As human population and resource demands continue to grow, biodiversity conservation has never been more critical. About one-quarter of all mammals are in danger of extinction, and more than half of all mammal populations are in decline. A major priority for conservation science is to understand the ecological traits that predict extinction risk and the interactions among those predictors that make certain species more vulnerable than others. Here, using a new database of nearly 4,500 mammal species, we use decision-tree models to quantify the multiple interacting factors associated with extinction risk. We show that the correlates of extinction risk vary widely across mammals and that there are unique pathways to extinction for species with different lifestyles and combinations of traits. We find that risk is relative and that all kinds of mammals, across all body sizes, can be at risk depending on their specific ecologies. Our results increase the understanding of extinction processes, generate simple rules of thumb that identify species at greatest risk, and highlight the potential of decision-tree analyses to inform conservation efforts.

When do conservation planning methods deliver? Quantifying the consequences of uncertainty

The rapid global loss of biodiversity has led to a proliferation of systematic conservation planning methods. In spite of their utility and mathematical sophistication, these methods only provide approximate solutions to real-world problems where there is uncertainty and temporal change. The consequences of errors in these solutions are seldom characterized or addressed. We propose a conceptual structure for exploring the consequences of input uncertainty and oversimplified approximations to real-world processes for any conservation planning tool or strategy. We then present a computational framework based on this structure to quantitatively model species representation and persistence outcomes across a range of uncertainties. These include factors such as land costs, landscape structure, species composition and distribution, and temporal changes in habitat. We demonstrate the utility of the framework using several reserve selection methods including simple rules of thumb and more sophisticated tools such as Marxan and Zonation. We present new results showing how outcomes can be strongly affected by variation in problem characteristics that are seldom compared across multiple studies. These characteristics include number of species prioritized, distribution of species richness and rarity, and uncertainties in the amount and quality of habitat patches. We also demonstrate how the framework allows comparisons between conservation planning strategies and their response to error under a range of conditions. Using the approach presented here will improve conservation outcomes and resource allocation by making it easier to predict and quantify the consequences of many different uncertainties and assumptions simultaneously. Our results show that without more rigorously generalizable results, it is very difficult to predict the amount of error in any conservation plan. These results imply the need for standard practice to include evaluating the effects of multiple real-world complications on the behavior of any conservation planning method.

Capital Budgeting and Political Risk: Empirical Evidence

AbstractThis paper surveys and investigates Swedish firms' use of capital budgeting techniques for foreign direct investments. We document that the use of the theoretically correct net present value method decreases with the political risk in the host country, and that the use of the Payback method increases with the political risk. We conclude that in the presence of capital market imperfections, unsystematic and country‐specific political risks are important. Because these risks are difficult to estimate (rendering high deliberation costs) managers are inclined to use simple rules of thumb for their capital budgeting decisions. Our results can partly explain why surveys find that alternative methods such as the Payback method are frequently used despite their theoretical drawbacks.

Financial Sophistication and Pension Plan Decisions

In this paper we use a private dataset to examine the contribution and investment decisions made by members of a large UK-based DC pension plan. We find that many employees appear to be relatively financially-sophisticated and follow approaches consistent with economic and financial theory in terms of savings rates and investment strategies. However, there are also many less sophisticated employees who stick with plan default arrangements and/or follow simple rules of thumb in saving and investing. The challenge for corporate sponsors of pension funds is in designing pension plans and communication strategies that reduce the chances of these less sophisticated plan members making mistakes. The results in this paper highlight the areas where mistakes are made and the demographic profile of members most in need of help.

Assessing the efficiency of first-principles basin-hopping sampling

We present a systematic performance analysis of first-principles basin-hopping (BH) runs, with the target to identify all low-energy isomers of small Si and Cu clusters described within density-functional theory. As representative and widely employed move classes we focus on single-particle and collective moves, in which one or all atoms in the cluster at once are displaced in a random direction by some prescribed move distance, respectively. The analysis provides detailed insights into the bottlenecks and governing factors for the sampling efficiency, as well as simple rules of thumb for near-optimum move settings that are intriguingly independent of the distinctly different chemistry of Si and Cu. At corresponding settings, the observed performance of the BH algorithm employing two simple general-purpose move classes is already very good and for the small systems studied essentially limited by frequent revisits to a few dominant isomers.

Dealing with limited overlap in estimation of average treatment effects

SUMMARY Estimation of average treatment effects under unconfounded or ignorable treatment assignment is often hampered by lack of overlap in the covariate distributions between treatment groups. This lack of overlap can lead to imprecise estimates, and can make commonly used estimators sensitive to the choice of specification. In such cases researchers have often used ad hoc methods for trimming the sample. We develop a systematic approach to addressing lack of overlap. We characterize optimal subsamples for which the average treatment effect can be estimated most precisely. Under some conditions, the optimal selection rules depend solely on the propensity score. For a wide range of distributions, a good approximation to the optimal rule is provided by the simple rule of thumb to discard all units with estimated propensity scores outside the range [0·1, 0·9].

From complexities to the rules of thumb: towards optimisation in pricing decisions

This study is arguing that management would benefit in pricing decision from simple rules of thumb more than from complicated models. These rules are easy to use and they provide management with useful support to move towards optimisation and to diminish gap between theory and practice. This paper presents three kinds of rules for pricing decision dealing with multi-product pricing, dynamic pricing and pricing objective function. The rules are adjusted versions of the Amoroso-Robinson rule. The paper also presents survey evidence on pricing decisions in Finnish firms. This evidence is based on a questionnaire responded by 205 firms. Finnish firms tend to use cost-plus pricing and are largely full-cost adopters although many of them report maximising objectives for pricing. Evidence shows that the firms are able and motivated to apply analytical methods for pricing. However, only 22% of the firms have adopted optimisation models in pricing decisions.

Flooding Simulation as a Practical Design Tool

The physical background of flooding simulation is reviewed and a simulation tool, implemented into ship design software, is presented. Focus is on a practical example, flooding of an engine room. The modelling of the equipment and the flooded compartments is presented and some parameters are varied in order to show how to study their effect on the whole flooding process. Benefits of computer aided design of counter flooding arrangements are discussed, with comparisons to the simple rules of thumb.

The need for speed: informed land acquisitions for conservation in a dynamic property market

Land acquisition is a common approach to biodiversity conservation but is typically subject to property availability on the public market. Consequently, conservation plans are often unable to be implemented as intended. When properties come on the market, conservation agencies must make a choice: purchase immediately, often without a detailed knowledge of its biodiversity value; survey the parcel and accept the risk that it may be removed from the market during this process; or not purchase and hope a better parcel comes on the market at a later date. We describe both an optimal method, using stochastic dynamic programming, and a simple rule of thumb for making such decisions. The solutions to this problem illustrate how optimal conservation is necessarily dynamic and requires explicit consideration of both the time period allowed for implementation and the availability of properties.

VERTEBRAL OSTEOMYELITIS COMPLICATING PNEUMOCOCCAL MENINGITIS

Target-date investment funds are one of the fastest-growing segments in the mutual fund industry. Yet there exists only a very limited literature on their comparative risk-return characteristics. This article is the first to assess simultaneously the impact of differential fees on income accumulation and on the risk that the asset allocation inherent in target-date investment funds will generate insufficient retirement funds to furnish a minimum acceptable standard of living. The modeling framework described in this article provides a means to calculate the implied defined benefit savings rate and shortfall risk. The author finds that the opportunity cost of fees on retirement wealth accumulation is modest for aggressive target-date funds. However, for conservative funds the opportunity cost of fees can be substantial. This is a counterintuitive result. A simple rule of thumb for assessing the impact of fees on accumulated retirement wealth is also developed. The methodological framework, analysis, and results discussed in this article will help investors, plan sponsors, and policy makers better understand the risk-return characteristics of different target-date investment strategies. <b>TOPICS:</b>Performance measurement, risk management, retirement

Evaluating Heuristics Used When Designing Product Costing Systems

The academic and practitioner literature justifies firms' use of product costs in product pricing and capacity planning decisions as heuristics to address an otherwise intractable problem. However, product costs are the output of a cost reporting system, which itself is the outcome of heuristic design choices. In particular, because of informational limitations, when designing cost systems firms use simple rules of thumb to group resources into cost pools and to select drivers used to allocate the pooled costs to products. Using simulations, we examine how popular choices in costing system design influence the error in reported costs. Taking information needs into account, we offer alternative ways to translate the vague guidance in the literature to implementable methods. Specifically, we compare size-based rules for forming cost pools with more informationally demanding correlation-based rules and develop a blended method that performs well in terms of accuracy. In addition, our analysis suggests that significant gains can be made from using a composite driver rather than selecting a driver based on the consumption pattern for the largest resource only, especially when combined with correlation-based rules to group resources. We vary properties of the underlying cost structure (such as the skewness in resource costs, the traceability of resources to products, the sharing of resources across products, and the variance in resource consumption patterns) to address the generalizability of our findings and to show when different heuristics might be preferred. This paper was accepted by Stefan Reichelstein, accounting.

Designing an Optimal Scheduler Buffer in OBS Networks

In this paper, we dimension a buffer in which headers are enqueued before processing in an optical burst switching (OBS) network. For the first time, we develop and analyze a unified OBS model comprising a set of homogeneous and independent edge buffers that feed bursts to a standalone link and their headers to a scheduler. Packets arrive at each edge buffer and are assembled into bursts, after which they are transmitted on a wavelength channel if their corresponding headers are successfully processed. In a case study, we demonstrate numerically that an optimal scheduler buffer size may exist and depends on the number of packets comprising a burst and the size of an edge buffer. We also show that packet blocking probability can be minimized using a simple rule of thumb for determining the optimal size of a scheduler buffer and the number of packets comprising a burst. All our analytical results are validated by way of simulation.