This thesis offers an analysis on factor models and related topics such as forecasting, the choice of the number of factors, model selection and structural breaks

This thesis contains three independent chapters that are aimed towards contributing to our understanding of three questions in the literature on poverty, occupational choice and social networks. The first chapter asks whether labor contracts in a rural economy play a significant role in insuring workers against risks and if the outside options of workers determine the extent to which their labor contracts are interlinked with their insurance arrangements. As such, it provides evidence on a well-established idea in the study of rural labor markets - that of labor-tying - by showing that it is an important channel through which the poor workers smooth their income and that an exogenous improvement in their outside options induces them to exit labor-tying and switch to alternative channels of informal insurance. The second chapter provides evidence on whether transfer of capital and skills enable the poor to permanently exit poverty by entering into higher return occupations. It shows that such a transfer not only transforms the occupational choices of the targeted poor, but has significant general equilibrium effects on the local markets, and corresponding spillover effects on non- targeted households. The third chapter provides evidence on the question \do formal transfers crowd out informal transfers", exploiting the randomized roll-out of a large scale asset transfer and training program to test for its effects on the informal transfer arrangements of the poor. It shows that the informal transfers to the poor are crowded out by the program, but this effect is highly heterogenous depending on the location of the sender and the vulnerability of the targeted poor.

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The thesis examines aid. It has two specific topics within that: the link between aid and domestic tax revenue, and aid allocation. In the chapter on aid and tax, it is shown that there is a negative link between aid in the form of grants and domestic tax revenue, but that this link is only found to be negative in the very earliest years of the sample (1970-1985). In more recent times, aid (grants or loans) have a positive effect on domestic tax revenue. There are two specific contributions within aid allocation. First, the reasons why aid is given are examined, and catalogued using the 4P framework: poverty, policy, population and proximity. Individual donors are examined, which allows a greater degree of clarity. Second, I move beyond examining the total amount of aid given, to study the type of aid given. It is shown that donors do practice policy selectivity at this level of disaggregation.

Macroeconomics move fast. This thesis adopts a Sociology of Scientific Knowledge (SSK) perspective to explain why. In only twenty five years three different orthodox positions on the relationship between unemployment and inflation, known as the Phillips Curve, cam to dominate the profession, only to decline subsequently. This research explores the role of politics in this rapid cycle of contest and closure. The research illustrates how empirical and theoretical work in the Phillips Curve debate were configured to conform to the expectations of the analyst. Examination of several clusters of papers within the debate make explicit the dynamics by which regressions and theories were shaped to provide the results required of them. Macroeconomics is shown to respond to the need of economic policy making circles. A nuance of the relationship between macroeconomists and policy making, rooted in the role of objectivity in lending legitimacy to Liberal Democracy, means macroeconomists lack the autonomy to define and contest the problems their discipline addresses. This holds heavy implications when economic policy decision-makers experience heightened political pressure. In these instances the faster temporality of the political sphere is imported into macroeconomics, and, in the three cases examined here, the prevailing orthodoxy subsequently fell. Drawing upon a literature survey and interviews with macroeconomists, including four Nobel Laureates, this research provides valuable insight into the social construction of macroeconomic knowledge

Many evolutionary game theory papers have obtained their results when the bounded rationality which creates change vanishes. In our first chapter we consider whether such results are actually a good reflection of a population whose bounded rationality is small yet persistent. Our model consists of a two type population with three stable equilibria. Firstly we find that results from the standard vanishing noise approach can be very different from those obtained when noise is small but constant. Secondly when the results differ the small and persistent noise approach selects an equilibrium with a co-existence of conventions. Our second chapter generalises the model of our first chapter to a population of many player types and several stable equilibria. Firstly we produce the characteristics of the long run equilibria under vanishing noise analysis. Secondly we find that the introduction of a small neutral group into a divided society can produce a welfare improving switch in the long run equilibrium towards social co-ordination. Our third chapter combines the model of the second chapter with the message of the first. We show numerically that the long run location of a heterogenous population with extremely low levels of bounded rationality can be completely different to the equilibria selected through vanishing noise analysis. We also show that such an event is not a rare occurrence and find that over a third of populations are misrepresented by stochastic stability. Our final chapter conducts a review of the literature on social threshold models. We give a thorough description of each paper and discuss the main assumptions that drive the key results.

The purpose of this thesis is to focus on some of the different decisions taken by taxi drivers. The three main areas considered are when a taxi driver chooses to work, where they choose to work and having chosen when and where, the strategy employed by the taxi driver. The chapter examining the decision on when a taxi driver chooses to work considers whether drivers are consistent with the neoclassical model of labour supply. Existing literature on taxi drivers has suggested taxi drivers behave in different ways. This thesis finds that taxi drivers respond to earning opportunities and are more likely to work when the earning opportunities are better than usual. The decision on where a taxi driver chooses to look for fares uses an experimental approach, putting subjects in the position of drivers choosing locations in a square grid. The location choice is a two dimensional extension of Hotelling’s model. In this particular experiment, Nash equilibrium is not obtained through minimum nor maximum differentiation and the learning of subjects and subsequent performance improvement is slow. Simulation through agent-based computational economics is used to investigate the different strategies taxi drivers can use. The simulations show that drivers can increase their own earnings and reduce the waiting time of potential customers by adopting a strategy which makes use of all the available information. The simulations also show that the effectiveness of a strategy is dependent on the choices of other drivers. This thesis suggests a different approach to the analysis of the labour supply decisions of taxi drivers and makes some recommendations regarding regulation of taxi services. The experimental and simulation chapters contribute to the literature through making use of these approaches in the context of looking at taxi drivers. The experiment and simulation could also be extended into other areas.

Credit cards have become an essential product for most consumers. Lenders have recognized the profit that can be achieved from the credit card market and thus they have introduced different credit cards to attract consumers. Thus, the credit card market has undergone keen competition in recent years. Lenders realize their operation decisions are crucial in determining how much pofit is achieved from a card. This thesis focuses on the most well-known operating policy: the management of credit limit. Lenders traditionally applied static decision models to manage the credit limit of credit card accounts. A growing number of lenders though want improved models so as to monitor the long-term risk and return of credit card borrowers. This study aims to use Markov Decision Process, which is a well-developed sequential decision model, to adjust the credit limit of current credit card accounts. The behavioural score, which is the way of assessing credit card holder's default risk in the next year, is used as the key parameter to monitor the risk of every individual account. The model formulation and the corresponding application techniques, such as state coarse-classication, choice of Markovity order, are discussed in this thesis. One major concern of using Markov Decision Process model is the small sample size in certain states. In general credit card lenders have lots of data. However, there may be no examples in the data of transitions from certain states to default, particularly for those high quality credit card accounts. If one simply uses zero to estimate these states' transition probabilities, this leads to apparent 'structural zeros' states which change the connectedness of the dynamics in the state space. A method is developed in this thesis to overcome such problems in real applications. The economy and retail credit risk are highly correlated and so one key focus of this study is to look at the interaction between credit card behavioural score migrations and the economy. This study uses dierent credit card datasets, one from Hong Kong and one from United Kingdom, to examine the impact of economy on the credit card borrowers' behaviour. The economies in these two areas were dierent during the sampling period. Based on these empirical ndings, this study has generalized the use of macroeconomic measurements in the credit limit models. This thesis also proposed segmenting the credit card accounts by the accounts' repayment patterns. The credit card population in general can be segmented into Transactors or Revolvers. Empirical ndings show the impact of economy are signicantly different for Transactors and Revolvers. This study provides a detailed picture of the application of Markov Decision Process models in adjusting the credit limit of credit card accounts.

This thesis, which is divided into five papers, explores biased decision making in naturalistic environments and its implications for the efficiency of financial markets and forecasts of competitive event outcomes. Betting markets offer a valuable real world decision making context, allowing analysis that is not possible using regular financial market data. The first paper surveys studies that have employed betting markets to investigate biased decision making and discusses why the extent of these biases is significantly less than in the laboratory. The second paper addresses unresolved issues relating to noise trading and herding in financial markets, by showing that noise trading is associated with increased market efficiency, that the extent of herding differs depending on the direction and timing of changes in market prices, and that this results in an economically significant inefficiency. The findings of this paper have important policy implications for wider financial markets: regulatory measures to protect investors from the destabilizing effects of noise appear to be self-defeating and herding is particularly prevalent when uninformed traders perceive that informed traders are participating in the market. The third and fourth papers address the favourite-longshot bias (FLB), where market prices under-/over-estimate high/low probability outcomes. These papers demonstrate that previous explanations of the bias are inconsistent with evidence of trading in UK betting markets by developing and testing the predictions of models that explain the bias in terms of competition between market makers and the demand preferences of bettors. Moreover, it is definitively shown that, when no market maker is involved, the bias is due to cognitive errors of traders rather than their preference for risk, because only prospect theory, and not risk-love, can explain a reduced FLB in events with strong favourites. The final chapter explores methodological concerns relating to estimates of forecast accuracy in models of discrete choice, and arrives at a much more rigorous understanding of the value of these estimates.

In economic theory, input-output analysis has been developed for the description of the production of a multi-sector economy. An input-output model is a quantitative economic technique that represents the interdependencies between different branches of a national economy or different regional economies. In the region of input-output economics, many models were established to describe the real economics.