

p value
Is associated with a test statistic. It is "the probability, if the test statistic really were distributed as it would be under the null hypothesis, of observing a test statistic [as extreme as, or more extreme than] the one actually observed." The smaller the P value, the more strongly the test confirms the null hypothesis.
A pvalue of .05 or less confirms the null hypothesis "at the 5% level" that is, the statistical assumptions used imply that only 5% of the time would the supposed statistical process produce a finding this extreme if the null hypothesis were false.
5% and 10% are common significance levels to which pvalues are compared.

Paasche index
A kind of index number. The official method for US price deflators computes them as a Paasche index. The algorithm is just like the Laspeyres index but the base quantities are chosen from the second, later period.
See also http://www.geocities.com/jeab_cu/paper2/paper2.htm.

panel data
Data from a (usually small) number of observations over time on a (usually large) number of crosssectional units like individuals, households, firms, or governments.

par
Can by a synonym for 'face value' as in the expression "valuing a bond at par".

paradox
This word is used in a particular way within the literature of economics  not to describe a situation in which facts are apparently in conflict, but to describe situations in which apparent facts are in conflict with models or theories to which some class of people holds allegiance. This use of the word implies strong belief in the measured facts, and in the theory, and the resolution to economic paradoxes tend to be of the form that the data do not fit the model, the data are mismeasured or, (the most common case) the model or theory does not fit the environment measured.
In some ways the term paradox is awkward in economics since the data are so poorly measured, the models so brutally simplified, and the mapping between environment and evidence so stochastic. So this editor avoids the term where possible, but often it is a compact and vigorous way of telling the reader the context of the subsequent discussion.
A list of these that an economist may be expected to recognize includes: Allais paradox, Ellsberg paradox, Condorcet voting paradox, Scitovsky paradox, and productivity paradox.

parametric
adjective. A function is 'parametric' in a given context if its functional form is known to the economist. Example 1: One might say that the utility function in a given model is increasing and concave in consumption. But it only becomes parametric once one says that u(c)=ln(c) or u(c)=c^{1A}/1A. At this point only parameters such as A remain to be specified or estimated. Example 2: In an econometric model one often imposes assumptions such as that the the relationship being estimated is linear, thence to do a linear regression. These are parametric assumptions. One might also make some estimates of the 'regression function' (the relationship) without such parametric assumptions. This field is called nonparametric estimation.

Pareto chart
The message below was posted to a Stata listserv and is reproduced here without any permission whatsoever.
Date: Thu, 28 Jan 1999 08:59:57 0500
From: 'Steichen, Thomas'
Subject: RE: statalist: Re: Pareto diagrams
[snip]
Pareto charts are bar charts in which the bars are arranged in descending
order, with the largest to the left. Each bar represents a problem. The chart
displays the relative contribution of each subproblem to the total problem.
Why: This technique is based on the Pareto principle, which states that a
few of the problems often account for most of the effect. The Pareto
chart makes clear which 'vital few' problems should be addressed first.
How: List all elements of interest. Measure the elements, using the same
unit of measurement for each element. Order the elements according to
their measure, not their classification. Create a cumulative distribution
for the number of items and elements measured and make a bar and line
graph. Work on the most important elements first.
Reference: Wadsworth, Stephens and Godfrey. Modern Methods for Quality
Control and Improvement, New York: John Wiley, 1986 and Kaoru Ishikawa,
Guide To Quality Control, Asian Productivity Organization, 1982, Quality
Resources, 1990.
(Note: above info 'borrowed' from a web page)

Pareto distribution
Has cdf H(x) = 1  x^{(a)} where x>=0, a>0. This distribution is unbounded above. (A slightly different version, with two parameters, is shown in Hogg and Craig on p. 207.)

Pareto efficiency
An economic allocation is inefficient if there is an alternative allocation in which all
agents are better off in terms of their own objective functions (utilities, profits, payoffs);
it is said to be Pareto efficient if there is none such alternative allocation.
Put differently, in an Pareto efficient state, it is impossible to improve one agent's state without making
at least one other agent worseoff. This criterion generalizes the one of a maximal aggregate surplus
to situations with incomparable objective functions (preferences). It is weak in that typically entire
continua of Pareto efficient states exist; the criterion is therefore important mainly as a negative one,
ruling out (institutions leading to) inefficient states as undesirable.
With incomplete information about the agents' preferences, the notion
of Pareto efficiency is ambiguous. An operational criterion of efficiency then depends on the state of
the resolution of uncertainty: different allocations can be compared in terms of their exante,
their interim, or their expost efficiency.

Pareto optimal
In an endowment economy, an allocation of goods to agents is Pareto Optimal if no other allocation of the same goods would be preferred by every agent. Pareto optimal is sometimes abbreviated as PO.
Optimal is the descriptive adjective, whereas optimum is a noun. A Pareto optimal allocation is one that is a Pareto optimum. There may be only one such optimum.

Pareto set
The set of Paretoefficient points, usually in a general equilibrium setting.

partially linear model
Refers to a particular econometric model which is between a linear regression model and a completely nonparametric model: y=b'X+f(Z)+e where X and Z are known matrices of independent variables, y is a known vector of the dependent variable, f() is not known but often some assumptions are made about it, and b is a parameter vector. Assumptions are often made on e such as that e~N(0,s^{2}I) and that E(eX,Z)=0. The project at hand is to estimate b and/or to estimate f() in a nonparametric way, e.g. with a kernel estimator.

partition
"[A] partition of a finite set (capital omega) is a collection of disjoint subsets of (capital omega) whose union is (capital omega)."  Fudenberg and Tirole p 55

passive measures (to combat unemployment)
unemployment and related social benefits and early retirement benefits. (contrast active)

path dependence
Following David (97): describes allocative stochastic processes. Refers to the way the history of the process relates to the limiting distribution of the process. "Processes that are nonergodic, and thus unable to shake free of their history, are said to yield path dependent outcomes." (p. 13) "A pathdependent stochastic process is one whose asymptotic distribution evolves as a consequence" of the history of the process. (p. 14) The term is relevant to the outcome of economic processes through history. For example, the QWERTY keyboard standard would not be the standard if it had not been chosen early; thus the keyboard standard evolved through a pathdependent process.

path dependency
The view that technological change in a society depends quantitatively and/or qualitatively on its own past. "A variety of mechanisms for the autocorrelation can be proposed. One of them, due to David (1975) is that technological change tends to be 'local,' that is, learning occurs primarily around techniques in use, and thus more advanced economies will learn more about advanced techniques and stay at the cutting edge of progress." (Mokyr, 1990, p 163) A noted example of technological path dependence is the QWERTY keyboard, which would not be in use today except that it happened to be chosen a hundred years ago. A special interest in the research literature was taken in the question of whether technological path dependence has been observed to lead to noticeably Paretoinferior outcomes later. Liebowitz and Margolis in a series of papers (e.g. in the JEP) have made the case that it has not  that is that the QWERTY keyboard is not especially inferior to alternatives in productivity, and that the VHS videotapes were not especially inferior to Beta videotapes at the time consumers chose between them.

payoff matrix
In a game with two players, the payoffs to each player can be shown in a matrix. The one at right is from the classic Prisoners Dilemma game:   Player Two   C  D  Player One  C  3,3  0,4  D  4,0  1,1 
Here, player one's strategy choices (shown, conventionally, on the left) are C and D, and player two's, shown on the top, are also C and D. The payoffs of each possible choice of strategy pairs is in each cell of the matrix. The first number is the payoff to player one, and the second is the payoff to player two.

pdf
probability distribution function. This function describes a statistical distribution. It has the value, at each possible outcome, of the probability of receiving that outcome. A pdf is usually denoted in lower case letters. Consider for example some f(x), with x a real number is the probability of receiving a draw of x. A particular form of f(x) will describe the normal distribution, or any other unidimensional distribution.

PDV
Present Discounted Value

pecuniary externality
An effect of production or transactions on outside parties through prices but not real allocations.

perfect equilibrium
In a noncooperative game, a profile of strategies is a perfect equilibrium if it is a limit of epsilonequilibria as epsilon goes to zero.
There can be more than one perfect equilibrium in a game.
For a more formal definition see sources. This is a rough paraphrase.

Personality
"A global concept referring to all those relatively permanent traits, dispositions, or
characteristics within the individual, which give some degree of consistency to that
person?s behaviour"
(Feist, 1994).
In 1927 Allport found almost 50 different definitions, so for a deeper understanding it
should be explained according to its role in personality theory.

Personality psychology
Personality psychology is concerned with differences between individuals;
it overlaps with developmental and social psychology to some extent.
General orientations within personality psychology are the following:
• Trait theories propose traits as underlying properties; as such traits account
for behavioural consistencies and stable individual differences between persons.
• Situationism argues that behaviour is mainly determined by the situation rather than
by internal personality types or traits.
• Interactionism postulates that observed behaviour is a function of the interaction
between the traits of an individual and the specific characteristics of the situation
including traits of other persons who are present.

PERT
Program Evaluation and Review Technique (is this used?)

phase portrait
graph of a dynamical system, depicting the system's trajectories (with arrows) and stable steady states (with dots) and unstable steady states (with circles) in a state space. The axes are of state variables.

Phillips curve
A relation between inflation and unemployment. Follows from William Phillips' 1958 "The relation between unemployment and the rate of change of money wage rates in the United Kingdom, 18611957" in _Economica_. In the subsequent discussion the relation was thought to be a negative one  high unemployment would correlate with low inflation. That stylized fact lost empirical support with the stagflation of the U.S. in the 1970s, in which high inflation and high unemployment occurred together. More recent evidence suggests that over the long term, across countries, there is a POSITIVE correlation between inflation and unemployment. Discussion continues on which of these is more 'causal to' the other and less 'caused by' the other. In recent use, "[T]he 'Phillips curve' has become a generic term for any relationship between the rate of change of a nominal price or wage and the level of a real indicator of the intensity of demand in the economy, such as the unemployment rate."  Gordon, Robert G., "Foundations of the Goldilocks Economy" for Brookings Panel on Economic Activity, Sept 4, 1998.

PhillipsPerron test
A test of a unit root hypothesis on a data series.
(Ed.: what follows is my best, but imperfect, understanding.) The PhillipsPerron statistic, used in the test, is a negative number. The more negative it is, the stronger the rejection of the hypothesis that there is a unit root at some level of confidence. In one example a value of 4.49 constituted rejection at the pvalue of .10.

phrases
phrases

physical depreciation
Decline in ability of assets to produce output. For example, computers, light bulbs, and cars have low physical depreciation; they work until they expire. Could be said to be made up of deterioration and exhaustion.

Pigou effect
The wealth effect on consumption as prices fall. A lower price level leads to a greater existing private wealth of nominal value, leading to a rise in consumption. Contrast the Keynes effect.

plant
a plant is an integrated workplace, usually all in one location.

platykurtic
An adjective describing a distribution with low kurtosis. 'Low' means the fourth central moment is less than three times the second central moment; such a distribution has less kurtosis than a normal distribution. Platy means 'fat' in Greek and refers to the central part of the distribution. Platykurtic distributions are not as common as leptokurtic ones.

PO
Pareto Optimal

Poisson distribution
A discrete distribution. Possible values for x are the integers 1,2,3,...
Denoting mean as mu, the Poisson distribution has mean mu, variance mu, and pdf (e^{mu}mu^{x})/x!. Momentgenerating function (mgf) is exp(mu(e^{t}1)).

Poisson process
In such a process, let n be the number of events that occur in a given time. n will have a Poisson distribution.

political science
The academic subject centering on the relations between governments and other governments, and between governments and peoples.

polity
Group with an organized governance. Normally a politically organized population or can be a religious one.
Or, form of governance.
Examples needed. Use is very contextsensitive; that is, the definition is not too informative without examples.

polychotomous choice
Multiple choice. In the context of discrete choice econometric models, means that the dependent variable has more than two possible values.

pooling of interests
One of two ways to do the accounting for a U.S. firm after a merger. The alternative is purchase accounting.
A pooling of interests is the method usually taken for allstock deals.

poor
In poverty, which see.

portmanteau test
a test for serial correlation in a time series, not just of one period back but of many. Standard reference is Ljung and Box (1978). The equation characterizing this test is given on page 18, footnote 15, of BollerslevHodrick 1992 and will go in here when html has an equation format.

poverty
As commonly defined by U.S. researchers: the state of living in a family with income below the federally defined poverty line. poverty

power
"The power of a test statistic T is the probability that T will reject the null hypothesis when the hypothesis is not true.
Formally, it is the probability that a draw of T is in the rejection region given that the hypothesis is not true.

power distribution
A continuous distribution with a parameter that we will denote k. Pdf is kx^{k1}. Mean is k/(k+1). Variance is k/[(1+k)^{2}(2+k)].
This distribution has not been found to correspond to natural or economic phenomena, but is useful in practice problems because it is algebraically tractable.

PPF
Short for Production Possibilities Frontier.

PPP
Stands for purchasing power parity, a criterion for an appropriate exchange rate between currencies. It is a rate such that a representative basket of goods in country A costs the same as in country B if the currencies are exchanged at that rate.
Actual exchange rates vary from the PPP levels for various reasons, such as the demand for imports or investments between countries.

PraisWinsten transformation
An improvement to the original CochraneOrcutt algorithm for estimating time series regressions in the presence of autocorrelated errors. The implicit reference is to PraisWinsten (1954).
The PraisWinsten tranformation makes it possible to include the first observation in the estimation.

prefisc
Means before taking account of the government's fiscal policy. Usually refers to personal incomes before taxes and government transfers between people. For example a researcher might take more interest in prefisc income inequality than in postfisc income inequality because the effects of government transfers are designed specifically to reduce inequality.

precautionary savings
Savings accumulated by an agent to prepare for future periods in which the agent's income is low.

precision
reciprocal of the variance

predatory pricing
The practice of selling a product at low prices in order to drive competitors out, discipline them, weaken them for possible mergers, and/or to prevent firms from entering the market. It is an expensive strategy.
In the United States there is no legal (statutory) definition of predatory pricing, but pricing below marginal cost (the AreedaTurner test) has been used by the Supreme Court in 1993 as a criterion for pricing that is predatory. (Salon magazine, 1998/11/11)

predetermined variables
Those that are known at the beginning of the current time period. In an econometric model, means exogenous variables and lagged endogenous variables.

Preferences
A statement of preference is a statement of judgement. It is subjective
in the sense that it expresses somebody´s preference of something over something
else. It is relative because something is preferred over something else,
and because subject´s pure preferences may change over time (the latter could be
viewed as a change of taste).
In a narrow sense, the concept of preferences as used by economists can be understood
in terms of consumer preferences over consumption goods. The consumer´s preferences
order the set of consumption bundles available to him. (A consumption bundle is
a combination of all available commodities that are consumed, where the share of each
commodity can either be zero or have some positive value.) The expression xPy
means that the consumer prefers some bundle x over a bundle y, i.e.,
the consumer thinks that the bundle x is at least as good as the bundle y.
Accordingly, preferences can be understood as a mathematical relation on the set of
available consumption bundles. The following properties of this relation are assumed
to hold: The preference relation is
complete (i.e., any two bundles can be compared),
reflexive, and
transitive.
The assumption of transitivity is required for any
discussion of preference maximization; if preferences were not transitive,
there might be sets of bundles which had no best elements. Additionally, certain
continuity assumptions may be required. Given these properties of preferences over
consumption bundles, a utility
function can be shown to exist.
In experimental studies, however, transitivity has repeatedly been shown to be violated (see
Tversky (1977) or
Goldstone, Medin & Halberstadt (1997)).

presentoriented
A presentoriented agent discounts the future heavily and so has a HIGH discount rate, or equivalently a LOW discount factor. See also 'futureoriented', 'discount rate', and 'discount factor'.

price ceiling
Law requiring that a price for a certain good be kept below some level. May lead to shortage and a black market.

price complements
Inputs i and j to a production function are "price complements in production" if when the price of i goes down the use of both i and j go up.

price elasticity
A measure of responsiveness of some other variable to a change in price. See elasticity for the the general equation.

price floor
Law requiring that a price for a certain good be kept above some level.

price index
A single number summarizing price levels.
A larger number conventionally represents higher prices. A variety of algorithms are possible and a precise specification (which is rare) requires both an algorithm (an example of which is a Laspeyres index) and a set of goods, fixed known quantities of each (the basket),

price substitutes
Inputs i and j to a production function are "price substitutes in production" if when the price of i goes down the use of j goes up.

Prices
Exchange ratio for economic goods and services, denominated in terms of a numeraire good
called 'money' and determined endogenously as part of a market equilibrium.
Prices are terms of trade for exchanging economic goods on markets, like wages as prices
for labor duties, interest rates as prices for gain access to future liquidity today, insurance
premiums as prices for bearing risk, or option prices as prices for the right to buy
or sell at prespecified conditions at a later date.
Prices indicate the 'social' opportunity cost of giving up a marginal unit of goods in exchange for
a marginal unit of the numeraire good (money). Thus, they reflect the relative marginal desirability
(and costliness) of trading a particular good, as implied by the traders' preferences, technologies,
and resources, and hence signal the marginal profitability of supplying and demanding additional
units of the good. In particular in a competitive market equilibrium, equilibrium prices
are then characterized by the equality of aggregate demand and supply.
Typically, all units of a specified good are traded in a market for the same (uniform) price.
Uniform prices leave the market participants some rents from exchanging at fixed
terms of trade, thus providing incentives for the voluntary engagement in trade. In competitive
environments (see the entry on competitive market equilibrium), the free
formation of prices leads to stationary market situations which even maximize the total
gains from trade.
More generally, equilibrium prices are characterized by the absence of incentives to
change aggregate demand and aggregate supply for the particular good in question.
Equilibrium prices for derivative financial assets, for example, are determined solely
from the principle that no gains from trade are possible (no arbitrage principle);
see the entry on option pricing.

pricing kernel
same as "stochastic discount factor" in a model of asset prices.

pricing schedule
A mapping from quantity purchased to total price paid

principal strip
A bond can be resold into parts that can be thought of as components: a principal component that is the right to receive the principal at the end date, and the right to receive the coupon payments. The components are called strips. The principal component is the principal strip.

principalagent
The general name for a class of games faced by a player, called the principal, who by the nature of the environment does not act directly but instead by giving incentives to other players, called agents, who may have different interests.

principalagent problem
A particular gametheoretic description of a situation. There is a player called a principal, and one or more other players called agents with utility functions that are in some sense different from the principal's. The principal can act more effectively through the agents than directly, and must construct incentive schemes to get them to behave at least partly according to the principal's interests. The principalagent problem is that of designing the incentive scheme. The actions of the agents may not be observable so it is not usually sufficient for the principal just to condition payment on the actions of the agents.

principle of optimality
The basic principle of dynamic programming, which was developed by Richard Bellman: that an optimal path has the property that whatever the initial conditions and control variables (choices) over some initial period, the control (or decision variables) chosen over the remaining period must be optimal for the remaining problem, with the state resulting from the early decisions taken to be the initial condition.

Prisoner's Dilemma
A classic game with two players. Imagine that the two players are criminals being interviewed separately by police. If either gives information to the police, the other will get a long sentence. Either player can Cooperate (with the other player) or Defect (by giving information to the police). Here is an example payoff matrix for a Prisoner's Dilemma game:   Player Two   C  D  Player One  C  3,3  0,4  D  4,0  1,1 
(D,D) is the Nash equilibrium, but (C,C) is the Pareto optimum. (That difference is often discussed extensively for various games in the research literature.) If this same game is repeated more than once with a high enough discount factor, there exist Nash equilibria in which (C,C) is a possible outcome of the early stages.

Prisoners dilemma
Consider the following story. Two suspects in a crime are put into separate cells. If they both confess,
each will be sentenced to three years. If only one of them confesses, he will be freed and used to
witness against the other, who will receive a sentence of ten years. If neither confesses, they will
both convicted of a minor offense and spend just a year in prison.
This game is easily put in matrix form as a 2x2 game (see above). Once this is done, it is pretty
obvious that each prisoner (player) has a dominant strategy to confess. The unique
equilibrium of this game thus leads to the (Pareto) inefficient outcome (efficiency).
This provides the most famous example that strategic equilibrium typically implies
inefficient outcomes, and even can lead to the worst possible outcome (any other outcome is
paretodominating the equilibrium outcome.)
The prisoners' dilemma game illustrates the structure of interaction in an oil cartel, or any
oligolistic industry of quantity competition, where each firm has an incentive to 'spoil' the
market by unilaterally increasing its own output. The same structure of interaction characterizes
the problem of providing public goods (free rider problem), i.e. of voluntarily paying taxes.

pro forma
describes a presentation of data, typically financial statements, where the data reflect the world on an 'as if' basis. That is, as if the state of the world were different from that which is in fact the case. For example, a pro forma balance sheet might show the balance sheet as if a debt issue under consideration had already been issued. A pro forma income statement might report the transactions of a group on the basis that a subsidiary acquired partway through the reporting period had been a part of the group for the whole period. This latter approach is often adopted in order to ensure comparability between financial statements of the year of acquisition with those of subsequent years.

probability
probability

probability function
synonym for pdf.

probit model
An econometric model in which the dependent variable y_{i} can be only one or zero, and the continuous indepdendent variable x_{i} are estimated in: Pr(y_{i}=1)=F(x_{i}'b) Here b is a parameter to be estimated, and F is the normal cdf. The logit model is the same but with a different cdf for F.

process
see "stochastic process"

product differentiation
This is a product market concept. Chamberlin (1933) defined it thus: 'A general class of product is differentiated if any significant basis exists for distinguishing the goods of one seller from those of another.'

production function
Describes a mapping from quantities of inputs to quantities of an output as generated by a production process. Standard example is:
y = f(x_{1}, x_{2})
Where f() is the production function, the x's are inputs, and the y is an output quantity.

production possibilities frontier
A standard graph of the maximum amounts of two possible outputs that can be made from a given list of input resources.
A basic outline of how to draw one.

production set
The set of possible input and output combinations. Often put into the notation of netputs, so that this set can be defined by restrictions on a collection of vectors with the dimension of the number of goods, one element for each kind of good, and a positive or negative real quantity in each element.

productivity
A measure relating a quantity or quality of output to the inputs required to produce it.
Often means labor productivity, which is can be measured by quantity of output per time spent or numbers employed. Could be measured in, for example, U.S. dollars per hour.

productivity paradox
Standard measures of labor productivity in the U.S. suggest that computers, at least until 1995, were not improving productivity. The paradox is the question: why, then, were U.S. employers investing more and more heavily in computers?
Resolving the paradox probably requires an understanding of the gap between what the productivity statistics measure and the goals of the U.S. organizations getting computers. Sichel (1990), pp 3336 lists these six:  the mismanagement hypothesis is that computers underestimate the costs of new computer technology, such as training, and therefore buy too many for optimum shortrun profitability
 the redistribution hypothesis is that private rates of return on computers are high enough, but the effect is only to compete over business with other firms in the same industry, which does not overall show greater productivity; the analogy is to an arms race, in which both players invest heavily but the overall effect is not to increase security
 the long learninglags hypothesis is that information technology will generate a substantial productivity effect when society is organized around its availability, but it is too soon for that
 the mismeasurement hypothesis is that national economic accounts do not tend to measure the services brought by information technology such as quality, variety, customization, and convenience
 the offsetting factors hypothesis is that other factors unrelated to computers have dragged down productivity measures
 the small share of computers in the capital stock hypothesis is just that computers are too small a share of plant and equipment to make a difference.
Two other hypotheses on this subject are:  the externalities hypothesis is that computers in organization A improve the longrun productivity of organization B but this is not attributable in the national accounts to the computers in A.
 the reorganization hypothesis is that computers in a firm do not raise much the quantity of capital stock but they cause a more productive long run organization of the capital stock within that firm and a more efficient split of tasks between that firm and other organizations.
Technophiles (such as this writer, or venture capitalists, or Silicon Valley publications) and technology historians tend to believe in the long learninglags hypothesis, the mismeasurement hypothesis, the externalities/networkeffects hypothesis, and the reorganization hypothesis. The gap in beliefs and understandings between technophiles and national accounts and pricing experts, such as Sichel and Robert J. Gordon (see e.g. the 1996 paper) is astonishing as of early 1999. They talk past one another. The national accounts experts tend to take the labor/capital models more seriously, and technology history less seriously, than do the technophiles. The Federal Reserve Bank under Greenspan has piloted between these views.
Note, March 2002: The national accounts experts have come now to the view of the technophiles and it is now commonly thought thtat the productivity measure lags the other indicators in the boom.

proof
A mathematical derivation from axioms, often in principle in the form of a sequence of equations, each derived by a standard rule from the one above.

propensity score
An estimate of the probability that an observed entitiy like a person would undergo the treatment. This probability is itself a predictor of outcomes sometimes.

proper equilibrium
Any limit of epsilonproper equilibria as epsilon goes to zero.  Myerson (1978), p 78

property income
Nominal revenues minus expenses for variable inputs including labor, purchased materials, and purchased services. Property income can serve as an approximation to the services rendered by capital. It contains the returns to national wealth. It can be thought to include technology and organizational components as well as 'pure' returns to capital.

Prospect theory
Kahneman & Tversky (1979)
developed this theory to remedy the descriptive failures of subjectively expected utility (SEU)
theories of decision making. Prospect theory attempts to describe decisions under uncertainty,
and has also been applied to the field of social psychology. Like SEUtheories, prospect
theory assumes that the value V of an option or alternative is calculated as the summed
products over specified outcomes x. Each product consists of a utility
v(x) and a
weight w attached to the objective probability p of obtaining x.
Thus the value V of an option is w(p) v(x).
Prospect theory differs from expected utility theory in a number of important respects. First, it differs from expected utility theory in the way it handles the probabilities attached to particular outcomes. Prospect theory treats preferences as a funcion of "decision weights", and it assumes that these weights do not always correspond to probabilities. Specifically, prospect theory postulates that decision weights tend to overweight small probabilities and underweight moderate and high probabilities.
Prospect theory also replaces the notion of "utility" with "value". Whereas utility is usually defined only in terms of net wealth, value is defined in terms of gains and losses (deviations from a reference point). The value function has a different shape for gains and losses. For losses it is convex and relatively steep, for gains it is concave and not quite so steep.
Based on these assumptions some deviations from normative theories can be explained like loss aversion, reflection effect or framing effect.

Prototype
The prototype or family resemblance view
(Rosch & Mervis, 1975;
Rosch, 1978)
is one of five theories of conceptual structure in categorization
(Komatsu, 1992).
According to this view, people form summary representations 
prototypes  that abstract across specific instances (e.g.
several chairs) to give information about how members of
the category, on average, are like. Other theories of
conceptual structure are the classical view
(Katz, 1972;
Katz & Fodor, 1963),
the exemplar view
(Medin & Schaffer, 1978),
the schema view and, most recently, the explanationbased or
theory view
(JohnsonLaird, 1983;
Murphy & Medin, 1985).
Characteristics of the prototype view are:

pseudoinverse
Also called MoorePenrose inverse. The pseudoinverse of a matrix X always exists, is unique and satisfies four conditions shown on p 37 of Greene (93).
Perhaps the most important case is when there are more rows can columns, and X is of full column rank. Then the pseudoinverse of X is: (X'X)^{1}X'. Notice how much this equation looks like the equation for the OLS estimator.

PSID
Panel Study of Income Dynamics. Data set often used in labor economics studies. Data is from U.S. and is put together at the University of Michigan. Since 1968 the PSID has followed and interviewed annually a national sample that began with about 5000 families. Lowincome families were oversampled in the original design. Interviews are usually conducted with the 'head' of each family. Includes a lot of income and employment variables, and continues to track children who grow up and move out. For more information see the PSID's Web site at http://www.isr.mich.edu/src/psid/index.html

public finance
public finance

purchase accounting
One of two ways to do the accounting for a U.S. firm after a merger. The alternative is the pooling of interests.

Put hedge protective put
A put hedge is a hedge strategy consisting of holding an underlying asset and
simultaneously buying a put option (long put) of the same one. This combination leads to an
asymmetric gain/loss position at the expiration date: on the one hand there is an effective
hedge against losses and on the other hand it is possible to participate in the gains of the
underlying asset, but reduced to the amount of the option price.

put option
A put option is a security which conveys the right to sell a specified quantity of an underlying asset at or before a fixed date.

putcall parity
A relationship between the price of a put option and a call option on a stock according to a standard model. Define: r as the riskfree interest rate, constant over time, in an environment with no liquidity constraints S as a stock's price t as the current date T as the expiration date of a put option and a call option K as the strike price of the put option and call option C(S,t) as the price of the call option when the current stock price is S and the current date is t P(S,t) as the price of the put option when the current stock price is S and the current date is t Then the relationship is: P(S,t) = C(S,t)  S + Ke^{r(Tt)} The relationship is derived from the fact that combinations of options can make portfolios that are equivalent to holding the stock through time T, and that they must return exactly the same amount or an arbitrage would be available to traders.

puttingout system
'A condition for the puttingout system to exist was for labor to be paid a piece wage, since working at home made the monitoring of time impossible.'  Joel Mokyr, NU working paper: 'The rise and fall of the factory system: technology, firms, and households since the industrial revolution' CarnegieRochester Conference on macreconomics, Nov 1719, 2000.

puttyputty
As in Romer, JPE, Oct 1990. This describes an attribute of capital in some models. Puttyputty capital can be transformed into durable goods then back into general, flexible capital. This contrasts with puttyclay capital which if I understand correctly can be converted into durable goods but which cannot then be converted back into reinvestable capital. The algebraic modeler chooses one of these to make an argument or arrive at a conclusion within the model. The term is not normally interpreted empirically although empirical analogues to each kind of capital exist.
