Computational Economics

A COMPARATIVE STUDY OF DOLLAR COST AVERAGING VS. VALUE AVERAGING

by Pawel Stefan Benedykcinski

AUTHOR: PAWEL STEFAN BENEDYKCINSKI and ADVISOR: St. Olaf College ECONOMICS PROF. RICHARD GOEDDE

A COMPARATIVE STUDY OF DOLLAR COST AVERAGING VS. VALUE AVERAGING
Pawel S. Benedykcinski and Prof. Rick Goedde... more A COMPARATIVE STUDY OF DOLLAR COST AVERAGING VS. VALUE AVERAGING
Pawel S. Benedykcinski and Prof. Rick Goedde (Advisor)
Economics Department
St. Olaf College
Northfield, MN

My research compares three investment techniques, fixed and variable dollar cost averaging and value averaging to determine if any of the methods yield superior investment returns in the long run. Mutual funds, stocks, and exchange-traded funds were used to test the methods. Value averaging is a formula-based investment technique using a mathematical formula to guide the investment of money into a portfolio over time. With this method investors contribute to their portfolios in such a way that the portfolio balance increases by a set amount, regardless of market fluctuations. Dollar cost averaging invests equal amounts regularly and periodically over specific time periods in a particular investment or portfolio. By doing so more shares are purchased when prices are low, and fewer shares are purchased when prices are high.

After testing many mutual funds, ETFs, and individual stocks, I concluded that Value Averaging yields better Internal Rates of Return than fixed and variable Dollar Cost Averaging. The results also indicate that the three methods provide superior investment returns over extended investment time periods with little increase in risk, even if prices are volatile. One important difference between these three formula investment techniques is that value averaging requires larger sums of money to be invested at regular time intervals than fixed or variable dollar cost averaging do.

(2009) 'Just a lobbyist? The European Parliament and the consultation procedure', European Union Politics 10(1): 7-34.

by Diego Varela

The role of the European Parliament (EP) under the consultation procedure has been widely neglected by rational choice... more The role of the European Parliament (EP) under the consultation procedure has been widely neglected by rational choice models of legislative decision-making in the European Union (EU). This paper offers a new understanding of the procedure by means of a computational model in which lobbyists provide legislators with policy options. Transaction costs of assimilating information lead to rationing of access to the agenda-setter (i.e. the Commission). In this context, consultation converts the EP into an indirect channel to the agenda-setter for some lobbyists. I argue that the resulting pool of policy options, together with the right to be heard by the Commission and the latter's degree of rational ignorance, provides the EP with a legislative power that the literature has not so far recognized. The implications of this finding extend to other legislative procedures of the EU and to consultative committees in other political systems.

(2011) 'Interest rate setting at the ECB: Individual preferences and collective decision making', Journal of Policy Modeling 33(6): 804-820.

by Diego Varela

Co-authored with José Ramón Cancelo and José Manuel Sánchez-Santos.

We investigate whether the members of the Governing Council of the European Central Bank take into account the... more We investigate whether the members of the Governing Council of the European Central Bank take into account the specific economic conditions of their states of origin, to set the interest rates for the euro area. Testing the national-based view against the Europeanist perspective is a challenging issue, because voting inside the Governing Council is secret, and the final outcome depends both on the individual preferences and the procedures followed by the Governing Council to arrive at a decision. Accordingly, we model interest rate setting as a two-stage process: first, each member of the Governing Council sets his/her preferred rate, and next the Governing Council meets and decides the actual figure. Our empirical analysis shows that domestic developments play a major role in determining the preferred interest rate of the each member; and that some members exert agenda setting power, that precludes some interest rate policies to be considered at the meeting.

The Potluck Problem With Consumers' Choice Behavior

by Shrisha Rao

Co-authored with Nidhi Singh. 5th Annual IEEE Conference on Automation Science and Engineering (IEEE CASE 2009), Bangalore, India, August 2009.
doi:10.1109/COASE.2009.5234114.

This paper extends the current Potluck Problem to include multiple goods in the relevant problem scenario, thereby... more This paper extends the current Potluck Problem to include multiple goods in the relevant problem scenario, thereby bringing in the question of estimation of consumers' choice behaviors in the system. Given a variety of dishes to choose from at any dinner instance, an agent chooses a set of dishes in a particular proportion such that his utility from the total consumption is maximized. Such choice behaviors of agents determine the demand structure of the dishes offered in a potluck dinner. In this paper, we use mathematically specified models of consumer choice to represent these behaviors. These models are used to build a set of predictors that are capable of computing certain functional forms and variables (including seasonal and trend variables) of the demand system. Such predictors existing in the system are then used by agents in estimating the demand at future potluck dinner instances.

Group Effect, Productivity and Segregation Optimality

by Miguel Vargas Roman

with Raúl Conejeros, Lecture Notes in Economics and Mathematicla Systems, vol. 599, 2007.

Complementarities between Mathematical and Computational Modeling: The Case of the Repeated Prisoners’ Dilemma

by Xavier Vilà

We study the properties of the well known Replicator Dynamics when applied to a finitely re-
peated version of the... more We study the properties of the well known Replicator Dynamics when applied to a finitely re-
peated version of the Prisoners’ Dilemma game. We characterize the behavior of such dynamics
under strongly simplifying assumptions (i.e. only 3 strategies are available) and show that the
basin of attraction of defection shrinks as the number of repetitions increases. After discussing
the difficulties involved in trying to relax the “strongly simplifying assumptions” above, we ap-
proach the same model by means of simulations based on genetic algorithms. The resulting
simulations describe a behavior of the system very close to the one predicted by the replicator
dynamics without imposing any of the assumptions of the mathematical model. Our main con-
clusion is that mathematical and computational models are good complements for research in
social sciences. Indeed, while computational models are extremely useful to extend the scope of
the analysis to complex scenarios hard to analyze mathematically, formal models can be useful
to verify and to explain the outcomes of computational models.