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|
|By:||Campos-Vazquez, Raymundo M.
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|
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica: Journal of the Econometric Society, 263-291. uoregon.edu 提供的 [PDF]
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; iastate.edu 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.
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.
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- Langer, T., Weber, M.: Does binding of feedback influence myopic loss aversion? An experimental analysis. CEPR Discussion Paper 4084, London (2003)
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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
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
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 ;nyu.edu 提供的 [PDF]
==notes by yinung==
Prospect theory, myopic loss aversion (MLA) 和 equity premium puzzle 的重要文獻
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.
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,…
… 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.
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.
Tversky, Amos, and Daniel Kahneman. 1981. “The Framing of Decisions and the Psychology of Choice.” Science 211 (4481): 453–58.
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: http://dx.doi.org/10.1016/j.econlet.2012.01.003. ****.
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"
[They] found that when the investment horizon was three periods, feedback frequency had no effect on the allocation to the
risky asset. …
(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).
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.
- Myopic loss aversion, Regret, Multi-periods
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"
- 「定期定額和高資訊迴饋頻率」 下之投資風險資產比例 > 「定期定額和低資訊迴饋頻率」 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.
- Bellemare et al. (2005) in Economics Letters 發表的實驗結果:
- 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.
- Thomas Lange and Martin Weber (2005) “Myopic prospect theory vs. myopic loss aversion: how general is the phenomenon?" Journal of Economic Behavior & Organization, Volume 56, Issue 1, January 2005, Pages 25-38. DOI 本站
- 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
- . For all treatments, the proportion of wealth α(t) invested in the risky asset increases over time.
- 實驗結果 (圖、表)
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.
- Charles Bellemare, Michaela Krausee, Sabine Krfgerf,Chendi Zhang (2005) “Myopic loss aversion: Information feedback vs. investment flexibility“. Economics Letters, vol., 87, pp.319 – 324. yayawiki 站