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Past Seminars in Fall 2013:

On Aggregating Probabilistic Information: The Wisdom of (and Problem with) Crowds

Speaker: Victor R. Jose, McDonough School of Business, Georgetown University

Abstract:

Research related to the wisdom of crowds has often shown that aggregation of forecasts through linear opinion pools can provide a much better point estimate of unknown quantities than individual experts/forecasters. We examine how well this idea is translated when dealing with probability forecasts. One of the issues that we quickly see in dealing with linear opinion pools of probability forecasts is poor calibration. For example, as the crowd's diversity increases, the aggregate tends toward underconfidence. In this talk, I discuss a simple robust approach to combining individual probability forecasts called trimmed opinion pools that is able to address issues related to underconfidence. We also suggest a novel alternative in the case of overconfidence. Using probability forecast data from the US and European Surveys of Professional Forecasters, we demonstrate empirically that these simple robust approaches to opinion pools can outperform the linear opinion pool.

Friday, November 22nd, 11:00AM-12:00PM

Location: Duques 353 (2201 G Street, NW)

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Simple Priors for Variance Components: Bayesian Applications of the Root-Uniform Distribution

Speaker: Eugene D. Hahn, Salisbury University

Abstract:

Recent work has shown that the use of the previously-common Gamma distribution as a non-informative prior for variance components in Bayesian hierarchical models can actually be informative and lead to overly small random effects. As a result, alternatives to the Gamma distribution such as the uniform distribution, the folded noncentral t distribution, and the half- Cauchy distribution are now more prevalent. We introduce the root-uniform distribution as a simple flexible prior distribution for this context. The rootuniform generalizes the uniform distribution and has appealing properties.

Friday, November 8th, 11:00AM-12:00PM

Location: Duques 353 (2201 G Street, NW)

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Wine Futures and Advance Selling under Quality Uncertainty

Speaker: Dr. B. Kazaz, Whitman School of Management, Syracuse University

Abstract:

This paper examines the use of wine futures and advance selling as a form of operational flexibility to mitigate quality rating risk in wine production. At the end of a harvest season, the winemaker obtains a certain number of barrels of wine that can be produced for a particular vintage. While aging in the barrel, expert reviewers taste the wine, and create a barrel score, indicating the potential quality of the wine and offering clues as to whether it would be a success or a failure. Based on the barrel score, the wine producer makes two decisions: the percentage of its wine to be sold as futures and the price of wine futures. After one more year of aging, the wine is bottled, and the reviewers provide another review of the wine, and assign a bottle score that influences the market price of the wine. Advance selling in the form of wine futures offers several benefits to the winemaker. It enables the firm to pass on the risk of holding inventory that is uncertain in value to the consumers. It also allows the firm to recuperate the monetary investment early in the production process. Advance selling comes with risks as well. If the bottle score appreciates beyond the barrel rating, the winemaker might lose the opportunity of collecting greater revenues and obtaining a higher overall profit in the future. The paper makes three sets of contributions. First, it develops an analytical model that incorporates uncertain consumer valuations of wine futures and bottle wine, and the uncertain bottle rating that is assigned to the wine at the end of the production process. Second, our results provide insights into how barrel rating, consumer preference and the winemaker's preference influence the winemaker's allocation and pricing decisions. We provide insight into when the winemaker should place a higher priority on sales of wine futures, control of distribution, and cash position. We test our findings using data collected from Bordeaux wineries engaging in wine futures, and make recommendations for the artisanal and boutique wineries in the US (e.g. Finger Lakes, New York). Our third contribution relates to the impact of consumer heterogeneity on the optimal allocation and pricing decision. Contrary to the common belief that the winemaker may be better off when consumers are more homogenous, our results demonstrate that the winemaker can achieve a higher level of profitability when the market is filled with consumers that are heterogeneous. Joint work with T. Noparumpa, S. Webster.

Friday, November 15th, 3:00PM-4:00PM

Location: Duques 652 (2201 G Street, NW)

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Simple Priors for Variance Components: Bayesian Applications of the Root-Uniform Distribution

Speaker: Eugene D. Hahn, Salisbury University

Abstract:

Recent work has shown that the use of the previously-common Gamma distribution as a non-informative prior for variance components in Bayesian hierarchical models can actually be informative and lead to overly small random effects. As a result, alternatives to the Gamma distribution such as the uniform distribution, the folded noncentral t distribution, and the half- Cauchy distribution are now more prevalent. We introduce the root-uniform distribution as a simple flexible prior distribution for this context. The rootuniform generalizes the uniform distribution and has appealing properties.

Friday, November 8th, 11:00AM-12:00PM

Location: Duques 353 (2201 G Street, NW)

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