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…

兩種常見反對將心理學引進經濟學的理由:

…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.

===一些結論…===

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)

==References==

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.

有關財務

  • 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.

其它

  • 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.
廣告

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: 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"

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)

引文:
[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)

作者的解釋

引文
(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.

Highlights

► 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

Keywords

  • 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
p.811
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.
作者對此現象之詮釋

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.

文獻比較

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

imageimage

Hypothesis 3

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

image

實驗結果 (圖、表)

image image image image image image

Abstract

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.

相關文獻

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

Thomas Langer and Martin Weber (2008) " Does commitment or feedback influence myopic loss aversion?: An experimental analysis" Journal of Economic Behavior & Organization, Volume 67, Issues 3-4, September 2008, Pages 810-819. via DOI;

這篇和 Langer andWeber (2008) 重覆

Notes by Yi-Nung

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

Original Abstract

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.

Keywords: Intertemporal decision making; Myopic loss aversion; Feedback frequency; Length of commitment; Evaluation period

相關文獻

Bellemare et al. (2005) Myopic loss aversion: Information feedback vs. investment flexibility, Economics Letters, Volume 87, Issue 3, June 2005, Pages 319-324.

Behavioral Economics Comes of Age

Wolfgang Pesendorfer (2006) “Behavioral economics comes of age: A review essay on advances in behavioral economics."
Journal of Economic Literature,Volume 44, Number 3, September 2006 , pp. 712-721(10).
被引用 53 次相關文章全部共 15 個版本

Noted by Yi-Nung

這篇文章簡要地敘述了近年來實驗文獻的貢獻:

Behavioral economics is organized around experimental findings that suggest inadequacies of standard economic theories.

行為 (指以實驗為主的研究) 經濟主要的發現是指出標準經濟理論之不適當處;

主要可分為 4 點
(1) failures of expected utility theory;
(2) the endowment effect;
(3) hyperbolic discounting and
(4) social preferences.

重要名詞:

prospect theory

reference point

… the experimenter may frame a lottery L as (i) x with probability p and y with probability 1 − p; or, alternatively, as (ii) a payment of z and a subsequent lottery of x − z > 0 with probability p and the lottery y − z < 0 with probability 1 − p. The difference in the two lotteries is interpreted as a manipulation of the reference point.

first-order risk aversion

endowment effect

people place a higher value on objects they own than objects that they do not

Hyperbolic Discounting (immediacy effect)

subjects have a tendency to choose earlier, smaller rewards over later, larger rewards

Social Preferences

Original Abstract:
Advances in Behavioral Economics contains influential second-generation contributions to behavioral economics. Building on the seminal work by Kahnemann, Strotz, Thaler, Tversky, and others, these contributions have established behavioral economics as an important field of study in economics. In this essay, I discuss aspects of the research strategy and methodology of behavioral economics, as exemplified by the contributions to Advances.

League-Table Incentives and Price Bubbles in Experimental Asset Markets

Date: 2011-05
By: Cheung, Stephen L. (University of Sydney)
Coleman, Andrew (University of Sydney)
URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp5704&r=net
We study experimental markets in which participants face incentives modeled upon those prevailing in markets for managed funds. Each participant’s portfolio is periodically evaluated at market value and ranked in a league table according to short-term paper returns. Those who rank highly attract a larger share of new fund inflows. Under conditions in which prices are close to intrinsic value, the effect of incentives is mild. However under conditions in which markets are prone to bubble, mispricing is greatly exacerbated by incentives. Even in experienced markets, prices climb to levels clearly indicative of speculation and do not always crash back.
Keywords: league tables, price bubbles, managed funds markets, tournament incentives, asset market experiments
JEL: C92

Summary by Yi-Nung (2011.12.31)

本文重點

本文研究 “排行機制" 是否會使資產泡沫的情形更嚴重

…whether league-table incentives may contribute to the perpetuation of price bubbles in asset markets.
(p.5) … for league-table incentives to amplify price distortions in these markets

原因是:

Such an event, and any ensuing crash back to intrinsic value, can have adverse consequences for the efficient allocation of capital, as well as distorting the distribution of wealth and propagating instability throughout the economy. For these reasons, the factors that contribute to the severity of price bubbles are of interest to policy makers and regulators.

為何要用實驗來研究 asset bubble 問題之原因:

an inherent difficulty of studying price bubbles using historical data is that an asset’s true intrinsic value is not observable even in retrospect. Thus any empirical assessment of a price bubble is necessarily contingent upon assumptions that must be made with regard to intrinsic value, leading to the possibility of specification error. As a result, there is always scope for disagreement over whether any given historical episode indeed constitutes a price bubble.
p.4

… a further challenge for empirical research is that the incentives facing market participants may be endogenous to the performance of the market under consideration, may differ between participants within a given market, and may in any case not be observable to the researcher.

實驗設計主要依據

… design of our experiments is based upon canonical studies by Smith, Suchanek and Williams (1988)(PDF) and Noussair, Robin and Ruffieux (2001)(PDF).

本篇之實驗設計

Baseline:                每人獲得每段期間 “與績效無關之" 固定報酬,
競賽 tournament: 每人獲得每段期間 “以帳面價值成長率為績效" 之報酬 (league-table incentives, 或 tournament incentives (James and Isaac. 2000, AER))
其它變因: experience in repeated markets, 不同的 market intrinsic value

引文
In our baseline experiments, each trader receives identical periodic bonuses irrespective of their performance. These bonuses model the inflow of new funds under management, and in the baseline they do not vary as a function of relative performance. Thus under the baseline, a trader’s earnings depend only upon the intrinsic value of their holdings at the conclusion of the market. In our tournament condition, we introduce league-table incentives by allocating bonuses on the basis of each trader’s relative performance, as measured by the recent growth in the paper value of their portfolio. Once again, final earnings are assessed at intrinsic value; however the measure of return that is used to construct the league table is based upon market price. In this manner, we induce a tension between the pursuit of long-run and short-run measures of value under the tournament.

實驗主要結果:

1. 在固定報酬值的環境下, 有價格泡沫; 但相對於遞減報酬值的環境下, 價格泡沫較小
In the constant-value environment with baseline incentives, we again observe that prices deviate somewhat above intrinsic value in inexperienced markets. However, and again consistent with previous research, these deviations are mild compared to what we observe in the declining-value environment.
2. 在固定報酬值的環境下且有經驗的市場中, 價格泡沫現象幾乎沒有
Moreover, in experienced markets with baseline incentives, prices track intrinsic value almost perfectly.
3. league-table incentive 下價格泡沫情況更趨嚴重
… confirms the potential for league-table incentives to amplify price distortions in these markets
4.

引文

資產泡沫的定義: (p.3)

A bubble in asset prices has been defined as “trade in high volumes at prices that are considerably at variance from intrinsic value” (King et al 1993, p.183).

參考文獻:

James, D., R.M. Isaac. 2000. Asset markets: How are they affected by tournament incentives for individuals. American Economic Review. 90(4) 995–1004. [jstor.org提PDF]

這篇描述操作績效高於市場者, 其薪酬與績文呈正比; 但其它人則獲 flat rate 之薪酬