Information Acquisition and Decisions under Risk and Ambiguity

Date: 2014-05
By: Ralf Bergheim
This paper experimentally investigates individual information acquisition and decisions in ambiguous situations in which the degree of ambiguity can endogenously and individually be decreased by the subjects. In particular, I analyze how risk aversion, ambiguity attitude and personality traits are related to an individual’s information acquisition prior to a decision and to the decision itself based on this information. I focus on urn decisions and conduct treatments that consider the loss and gain domain separately and that vary the amount of available information and the probabilistic structure.
Keywords: Ambiguity aversion; risk aversion; experiment; decision making; information acquisition; personality traits
JEL: C91 D03 D81

The Role of Emotions on Risk Aversion: A prospect theory experiment

Date: 2013-03
By: Campos-Vazquez, Raymundo M.
Cuilty, Emilio
This study measures risk and loss aversion using Prospect Theory and the impact of emotions on those parameters. Our controlled experiment at two universities in Mexico City, using uncompensated students as research subjects, found results similar to those obtained by Tanaka et al. (2010). In order to study the role of emotions, we provided subjects with randomly varied information on rising deaths due to drug violence in Mexico and also on youth unemployment. In agreement with previous studies, we find that risk aversion on the gains domain decreases with age and income. We also find that loss aversion decreases with income and is less for students in public universities. With regard to emotions, risk aversion increases with sadness and loss aversion is negatively influenced by anger. On the loss domain, anger dominates sadness. On average, anger reduces loss aversion by half.
Keywords: Risk Aversion; Emotions; Prospect Theory; Experiment; Mexico
JEL: C93

Prospect theory: An analysis of decision under risk

Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica: Journal of the Econometric Society, 263-291. 提供的 [PDF]

==notes by yinung==
近數十年來, 影響最大的文章之一, 修正了期望效用理論的一些不合理的部份。
本文大量使用機率組合之選擇,以實驗 (問受試者) 的選擇,來解釋 EU 的不合理。
==original Abstract==
This paper presents a critique of expected utility theory as a descriptive model of decision making under risk, and develops an alternative model, called prospect theory. Choices among risky prospects exhibit several pervasive effects that are inconsistent with the basic tenets of utility theory. In particular, people underweight outcomes that are merely probable in comparison with outcomes that are obtained with certainty. This tendency, called the certainty effect, contributes to risk aversion in choices involving sure gains and to risk seeking in choices involving sure losses. In addition, people generally discard components that are shared by all prospects under consideration. This tendency, called the isolation effect, leads to inconsistent preferences when the same choice is presented in different forms. An alternative theory of choice is developed, in which value is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights. The value function is normally concave for gains, commonly convex for losses, and is generally steeper for losses than for gains. Decision weights are generally lower than the corresponding probabilities, except in the range of low probabilities. Overweighting of low probabilities may contribute to the attractiveness of both insurance and gambling.

Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis

MICHAEL S. HAIGH and JOHN A. LIST (2005) “Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis." Journal of Finance, Volume 60, Issue 1, pages 523–534, February 2005. DOI: 10.1111/j.1540-6261.2005.00737.x; 提供的 [PDF];


Two behavioral concepts, loss aversion and mental accounting, have been combined to provide a theoretical explanation of the equity premium puzzle. Recent experimental evidence supports the theory, as students’ behavior has been found to be consistent with myopic loss aversion (MLA). Yet, much like certain anomalies in the realm of riskless decision-making, these behavioral tendencies may be attenuated among professionals. Using traders recruited from the CBOT, we do indeed find behavioral differences between professionals and students, but rather than discovering that the anomaly is muted, we find that traders exhibit behavior consistent with MLA to a greater extent than students.

Do financial advisors exhibit myopic loss aversion?*

Kristoffer W. Eriksen, and Ola Kvaløy (2010) “Do financial advisors exhibit myopic loss aversion?."  Financial Markets and Portfolio Management, June 2010, Volume 24, Issue 2, pp 159-170.

==original Abstract==

Myopic loss aversion (MLA) has been proposed as an explanation for the equity premium puzzle, and a number of experiments on students indicate that people do exhibit MLA. However, many people do not rely on their own judgment when making investment decisions, but obtain help from financial investment advisors on how to allocate their wealth. The preferences and choices of financial advisors are thus important for understanding investment behavior. In this paper we make use of 50 professional financial advisors to examine whether they exhibit behavior consistent with MLA. Indeed, we find that they behave consistently with MLA to a larger extent than students.

==selected references==

  1. Bellemare, C., Krause, M., Kröger, S., Zhang, C.: Myopic loss aversion, information dissemination, and the equity premium puzzle. Econ. Lett. 87, 319–324 (2005) CrossRef
  2. Benartzi, S., Thaler, R.: Myopic loss aversion and the equity premium puzzle. Q. J. Econ. 110, 73–92 (1995) CrossRef
  3. Canner, N., Mankiew, N.G., Weil, D.N.: An asset allocation puzzle. Am. Econ. Rev. 87, 181–191 (1997)
  4. Capon, N., Fitzsimons, G., Prince, R.: An individual level analysis of the mutual fund investment decision. J. Financ. Serv. Res. 10, 59–82 (1996) CrossRef
  5. De Giorgi, E., Hens, T.: Making prospect theory fit for finance. Financ. Mark. Portf. Manag. 20, 339–360 (2006) CrossRef
  6. Fellner, G., Sutter, M.: Causes, consequences and cures of myopic loss aversion—An experimental investigation. Econ. J. 119, 900–916 (2009) CrossRef
  7. Feng, L., Seasholes, M.S.: Do investor sophistication and trading experience eliminate behavioral biases in financial markets? Rev. Finance 9, 305–351 (2005) CrossRef
  8. Gneezy, U., Potters, J.: An experiment on risk taking and evaluation rounds. Q. J. Econ. 102, 631–645 (1997)
  9. Gneezy, U., Kapteyn, A., Potters, J.: Evaluation rounds and asset prices in a market experiment. J. Finance 58, 821–837 (2003) CrossRefHaigh, M.S., List, J.A.: Do professional traders exhibit myopic loss aversion? An experimental analysis. J. Finance 60, 523–534 (2005) CrossRef
  10. Harrison, G.W., Rutström, E.E.: Risk aversion in the laboratory. Res. Exp. Econ. 12, 41–196 (2008) CrossRef
  11. Kahneman, D., Tversky, A.: Prospect theory: An analysis of decision under risk. Econometrica 47, 263–291 (1979) CrossRef
  12. Kahneman, D., Tversky, A.: Choices, values and frames. Am. Psychol. 39, 341–350 (1984) CrossRef
  13. Langer, T., Weber, M.: Does binding of feedback influence myopic loss aversion? An experimental analysis. CEPR Discussion Paper 4084, London (2003)
  14. List, J.A.: Does market experience eliminate market anomalies? Q. J. Econ. 118, 41–71 (2003) CrossRef
  15. Mehra, R., Prescott, E.: The equity premium: A puzzle. J. Monet. Econ. 15, 145–161 (1985) CrossRef
  16. Rabin, M.: Risk aversion and expected-utility theory: A calibration theorem. Econometrica 68, 1281–1292 (2000) CrossRef
  17. Siebenmorgen, N., Weber, M.: A behavioral model for asset allocation. Financ. Mark. Portf. Manag. 17, 15–42 (2003) CrossRef
  18. Siegel, J.J., Thaler, R.: Anomalies: The equity premium puzzle. J. Econ. Perspect. 11, 191–200 (1997)
  19. Sutter, M.: Are teams prone to myopic loss aversion? An experimental study on individual versus team investment behavior. Econ. Lett. 97, 128–132 (2007) CrossRef
  20. Thaler, R.: Mental accounting and consumer choice. Mark. Sci. 4, 199–214 (1985) CrossRef
  21. Thaler, R., Tversky, A., Kahneman, D., Schwartz, A.: The effect of myopia and loss aversion on risk taking: An experimental test. Q. J. Econ. 102, 647–661 (1997)
  22. Tversky, A., Kahneman, D.: Advances in prospect theory: Cumulative representation of uncertainty. J. Risk Uncertain. 5, 297–323 (1992) CrossRef

Are teams prone to myopic loss aversion? An experimental study on individual versus team investment behavior*

Matthias Sutter (2007) “Are teams prone to myopic loss aversion? An experimental study on individual versus team investment behavior."Economics Letters, Volume 97, Issue 2, November 2007, Pages 128–132. DOI; ***

==notes by yinung==

此文之實驗研究細節,可參考 Team decision making under risk and myopic loss aversion 一文, or see 2005-Sutter-team decision-working paper

==original abstract==

Myopic loss aversion (MLA) has been found to have a persistent influence on individual decision making under risk. In this paper I show that team decision making attenuates MLA, but that teams are also prone to MLA

Myopic Loss Aversion and the Equity Premium Puzzle

Shlomo Benartzi and Richard H. Thaler  (1995) “Myopic Loss Aversion and the Equity Premium Puzzle.” Quarterly Journal of Economics, Vol. 110, No. 1 (Feb., 1995), pp. 73-92. ; doi: 10.2307/2118511 ; 提供的 [PDF]

==notes by yinung==

Prospect theory, myopic loss aversion (MLA) 和 equity premium puzzle 的重要文獻

==original Abstract==

The equity premium puzzle refers to the empirical fact that stocks have outperformed bonds over the last century by a surprisingly large margin. We offer a new explanation based on two behavioral concepts. First, investors are assumed to be “loss averse,” meaning that they are distinctly more sensitive to losses than to gains. Second, even long-term investors are assumed to evaluate their portfolios frequently. We dub this combination “myopic loss aversion.” Using simulations, we find that the size of the equity premium is consistent with the previously estimated parameters of prospect theory if investors evaluate their portfolios annually.

Psychologists at the Gate: A Review of Daniel Kahneman’s Thinking, Fast and Slow*

Shleifer, Andrei. 2012. “Psychologists at the Gate: A Review of Daniel Kahneman’s Thinking, Fast and Slow." Journal of Economic Literature, 50(4): 1080-91. link to AEAWeb;

==Notes by yinung==

這篇文章回顧 Daniel Kahneman 的書  “Thinking, Fast and Slow

… because the  book mentions few economic applications, I  will describe some of the economic research that has been substantially infuenced by  this work.

作者認為 Kahneman and Tversky 影響最大者在於 財務學 (或稱行為財務) … this work. My feeling is that the most profound infuence of Kahneman and Tversky’s work on economics has been in fnance, on what has now become the field of behavioral finance…


…two common objections to the introduction of psychology into economics,…

A. 經濟學較著重研究人類行為的一般觀點,而非特殊行為
… economists should focus on “first order things”rather than quirks (quirk 這個字原意是).

1. 反例1,人們花太多錢在保險,只為了很小的可能損失 (這可不是特殊現象),
individuals pay large multiples of actuarially fair value to buy insurance against small losses, as well as to reduce their deductibles (Sydnor 2010).

2. 反例2,廣告 (??還沒看懂)
the standard economic view that persuasion is conveyance of information seems to run into a rather basic problem that advertising is typically emotional, associative, and misleading— yet nonetheless effective (Bertrand et al. 2010; DellaVigna and Gentzkow 2010; Mullainathan, Schwartzstein, and Shleifer 2008).

3. 反例3,財務理論說,投資者應選 low-cast index fund, 但事實上大部份人卻是選 high-cost actively managed funds

B. 市場力量可消除心理因素對價格和分配之影響 (價格和效率)
… market forces eliminate the influence of psychological factors on prices and allocations.

1. 反例,Real-world arbitrage is costly and risky, and hence limited, … Dozens of empirical studies confirm that, even in markets with relatively inexpensive arbitrage, identical, or nearly identical, securities trade at different prices. With costlier arbitrage, pricing is even less efficient.

2. 市場參與者大多不理性,即是有專家之協助 (專家的動機通常值得懷疑,見(Chalmers and Reuter 2012; Gennaioli,
Shleifer, and Vishny 2012))
Market forces often work to strengthen, rather than to eliminate, the influence of psychology.
List 研究棒球卡交易,發現專家沒有 endowment effects, 支持了此一觀點。

兩個思考體系 (two systems)

System 1: 直覺、自動、非意識性、容易 (intuitive, automatic, unconscious, and effortles);快速反應,透過聯想、組合

System 2: 具意識性、緩慢、受控制 …但不容易 (conscious, slow, controlled, deliberate, effortful, statistical, suspicious, and lazy (costly to use));這是經濟學家認為的思考

Heuristics and Biases

Anchoring effects: 對未知的問題,容易受到前置性的影響 (擲俄羅斯輪盤,看到數字後,猜非洲國家佔聯合國之比例…, 看到輪盤數字小者猜小, 看到數字大者猜大)

… respondents receive all the information they need, but nonetheless do not use it correctly.


人類注意和聯想到的資訊,並非皆是在最佳決策中所需要的… 系統 1 的思考是自動反應,而非最佳化: 選擇性認知與記憶之決策行為(highly selective perception and memory … before we make decisions and choice)
… the fundamental feature of System 1 is that what our attention is drawn to, what we focus on, and what we recall is not always what is most necessary or needed for optimal decision making.

==original Abstract==

The publication of Daniel Kahneman’s book, Thinking, Fast and Slow, is a major intellectual event. The book summarizes, but also integrates, the research that Kahneman has done over the past forty years, beginning with his path-breaking work with the late Amos Tversky. The broad theme of this research is that human beings are intuitive thinkers and that human intuition is imperfect, with the result that judgments and choices often deviate substantially from the predictions of normative statistical and economic models. In this review, I discuss some broad ideas and themes of the book, describe some economic applications, and suggest future directions for research that the book points to, especially in decision theory. (JEL A12, D03, D80, D87)


有關 prospect theory

  • Barberis, Nicholas. Forthcoming. “Thirty Years of Prospect Theory in Economics.” Journal of Economic Perspectives.
  • Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. 2012b. “Salience in Experimental Tests of the Endowment Effect.” American Economic Review 102 (3): 47–52.
  • Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. 2012c. “Salience Theory of Choice Under Risk.” Quarterly Journal of Economics 127 (3): 1243–85.
  • Hart, Oliver, and John Moore. 2008. “Contracts as Reference Points.” Quarterly Journal of Economics 123 (1): 1–48.
  • Koszegi, Botond, and Matthew Rabin. 2006. “A Model of Reference-Dependent Preferences.” Quarterly Journal of Economics 121 (4): 1133–65.
  • *List, John A. 2003. “Does Market Experience Eliminate Market Anomalies?” Quarterly Journal of Economics 118 (1): 41–71.
  • Pope, Devin G., and Maurice E. Schweitzer. 2011. “Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes.” American Economic Review 101 (1): 129–57.


  • Barberis, Nicholas, and Ming Huang. 2008. “Stocks as Lotteries: The Implications of Probability Weighting for Security Prices.” American Economic Review 98 (5): 2066–2100.
  • Barberis, Nicholas, Andrei Shleifer, and Robert W. Vishny. 1998. “A Model of Investor Sentiment.” Journal of Financial Economics 49 (3): 307–43.
  • Benartzi, Shlomo, and Richard H. Thaler. 1995. “Myopic Loss Aversion and the Equity Premium Puzzle.” Quarterly Journal of Economics 110 (1): 73–92.
  • De Bondt, Werner F. M., and Richard H. Thaler. 1985. “Does the Stock Market Overreact?” Journal of Finance 40 (3): 793–805.
  • Frazzini, Andrea, and Owen A. Lamont. 2008. “Dumb Money: Mutual Fund Flows and the Cross-Section of Stock Returns.” Journal of Financial Economics 88 (2): 299–322.
  • Lakonishok, Josef, Andrei Shleifer, and Robert W. Vishny. 1994. “Contrarian Investment, Extrapolation, and Risk.” Journal of Finance 49 (5): 1541–78.
  • Sydnor, Justin. 2010. “(Over)insuring Modest Risks.” American Economic Journal: Applied Economics 2 (4): 177–99.


  • Gennaioli, Nicola, and Andrei Shleifer. 2010. “What Comes to Mind.” Quarterly Journal of Economics 125 (4): 1399–1433.
  • House money effects
    Thaler, Richard H., and Eric J. Johnson. 1990. “Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice.” Management Science 36 (6): 643–60.
  • Framming
    Tversky, Amos, and Daniel Kahneman. 1981. “The Framing of Decisions and the Psychology of Choice.” Science 211 (4481): 453–58.

The effect of short-term information on long-term investment: An experimental study*

Uri Benzion, Lena Krupalnik, Ahron Rosenfeld, Shosh Shahrabani, Tal Shavit (2012) “The effect of short-term information on long-term investment: An experimental study."Economics Letters, Volume 116, Issue 1, July 2012, Pages 20–22. DOI: ****.

notes by yinung

其它的 MLA 實驗文獻都著重在投資期間短/長, 和報酬資訊迴饋高/低 對風險資產持有意願之影響, 這篇的實驗是比較同樣是 8 期一次決定的 “長期" 投資決策, 可是 treatment 是有沒有報酬資訊迴饋 (8期都有, 或是都沒有), 結果發現:

  • 沒有資訊下的 “長期投資" > 有資訊下的 “長期投資"
  • 有資訊下: After “aggregate loss" 的 “長期投資" < After “aggregate gain " 的 “長期投資" (這好像是 house money effects)
  • 無資訊下: After “aggregate loss" 的 “長期投資" ~= After “aggregate gain " 的 “長期投資"

本文主旨係針對  Fellner and Sutter (2009) 實驗指出「短期資訊對長期投資無影響」來研究 (其實 Langer and Weber (2008) 也有類似發現)

[They] found that when the investment horizon was three periods, feedback frequency had no effect on the allocation to the
risky asset. …
Adaptive reaction to feedback implies under-diversification (待了解) (Benzion et al., 2010; De Bondt and Thaler, 1990; Nosic and Weber, 2009)


(1) individuals tend to rely on small samples of past experiences for decision-making, which leads them to chase after past returns in the financial markets (Barron and Erev, 2003; Chevalier and Ellison, 1997; Sirri and Tufano, 1998).
(2) disappointment aversion: …Fielding and Stracca (2007) suggested, ‘‘It is reasonable to interpret loss and disappointment aversion in terms of the losses and disappointments that one might face, not from investing at all, but rather from investing in a risky asset instead of a safe one’’ [p. 225].

Original Abstract

We present a multi-trial experiment that extends the classic experiment of Thaler et al. (1997) by adding short-term information to long-term investment. The allocation to the risky asset is reduced in the long-term, when we add short-term information.


► We test experimentally how short-term returns’ information affects long-term investment. ► In two treatments, subjects allocated funds between two assets for eight periods in advance. ► In treatment 1, subjects received information about the aggregate and each period returns. ► In treatment 2, the subjects received information only about the aggregate return. ► The allocation to the risky asset is lower in treatment 1 than in treatment 2.

JEL classification


  • Myopic loss aversion, Regret, Multi-periods

Does commitment or feedback influence myopic loss aversion? An experimental analysis

Thomas Langer, Martin Weber, (2008),Does commitment or feedback influence myopic loss aversion? An experimental analysis, Journal of Economic Behavior & Organization, 67, 810–819. LINK TO JEBO

Notes by yinung

這篇將投資期間長/短 , 和資訊迴饋頻率 (frequent/infrequent) 兩種因素進行交叉實驗, 實驗結果和 Bellemare et al. (2005) 的並不十分一致; Bellemare et al. (2005) 主要實驗設計在於資訊迴饋頻率 frequent/infrequent, 其 treatment 有三種:

H: 投資期間1期, 資訊迴饋頻率每1期
M: 投資期間3期, 資訊迴饋頻率每1期
L: 投資期間3期, 資訊迴饋頻率每3期

Bellemare et al. (2005) 實驗結果是: 投資額度 L~M>H

本文有 3 個主要結論:

  • 定期定額 (binding decisions, 連續3期) 可降低短視現象 (myopic, 對風險資產投資比例較高), 且這個現象不會隨著時間增長而改變
First, binding decisions cause people to be less myopic, perhaps because they must think through the implications of a longer time horizon.
  • 提供較低頻率報酬結果迴饋資訊, 有助於降低短視現象, 即隨著時間增長, 可使持有/投資風險資產比例升高
Second, providing less frequent feedback seems to help people learn over time that it is better to go with the risky prospect (i.e. to be less myopic).
  • 定期定額和資訊迴饋頻率之間似乎有複雜的混合效果 (mixed treatment effects):
    • 最強效果 (應該指的是投資風險資產比例最高) 出現在 “定期定額和高資訊迴饋頻率"
    • 「定期定額和資訊迴饋頻率」 下之投資風險資產比例 > 「定期定額和資訊迴饋頻率」 下之投資風險資產比例
Third, there is no simple main effect from combining commitment and feedback, but an interaction between these two variables.

It seems that if people are committed to their decisions, more frequent feedback is helpful because over time it becomes more salient that occasional losses are outweighed by ultimate gains.


只要資訊頻率降低, 即可讓投資風險資產意願提高…
Our findings show that varying the information condition alone suffices to induce behavior that is in line with the hypothesis of Myopic Loss Aversion.
In this paper, we argue that the relation between myopia and the attractiveness of a lottery sequence is less general than previously suggested in the literature.
主要 hypotheses


Hypothesis 3

. For all treatments, the proportion of wealth α(t) invested in the risky asset increases over time.


實驗結果 (圖、表)

image image image image image image


Empirical research has demonstrated that a lower feedback frequency combined with a longer period of commitment decreases myopia and thereby increases the willingness to invest in a risky asset. In an experimental study, we disentangle the intertwined manipulation of feedback frequency and commitment to analyze how each individual variable contributes to the change in myopia and how they interact. We find that the period of commitment exerts a substantial impact and the feedback frequency a far less pronounced impact. There is a strong interaction between both variables. The results have significant implications for real world intertemporal decision making.