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on Cognitive and Behavioural Economics |
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Issue of 2024‒08‒12
two papers chosen by |
| By: | Fabian Herweg; Svenja Hippel; Daniel Müller; Fabio Römeis |
| Abstract: | We investigate whether violations of canonical axioms of choice under risk are mistakes or a manifestation of true preferences. First, we elicit axiom and gamble preferences and then allow subjects to revise their potentially conflicting preferences. Among the behavioral patterns that allow for a clear-cut interpretation on the decision level, we find that roughly 70% of axiom viola-tions are intentional whereas only 30% are mistakes. On the subject level we can clearly categorize almost half of our subjects. Among those, roughly 24%are rational expected utility maximizers, 24% make occasional mistakes, and 52% refute the normative value of these axioms. |
| Keywords: | axiomatic rationality, choice under risk, context-dependent preferences, mistakes, regret theory |
| JEL: | C91 D01 D81 D91 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11166&r= |
| By: | Oliver, Adam |
| Abstract: | In a previously published article, I reported some tests of prospect theory's reflection effect over outcomes defined by money and life years gained from treatment. Those results suggested qualified support for the reflection effect over money outcomes and strong support over longevity outcomes. This article reruns those tests while accounting for the intensity of individual risk attitudes, and, overall, show consistency with the reflection effect. However, I argue that these results do not necessarily offer support for the explanatory power of prospect theory. Rather, the results may be driven by evolved responses to circumstances that provoke perceptions of scarcity and abundance. Therefore, from an ecological perspective, behavioral patterns such as those that are consistent with the reflection effect, which, by extension, tend to be considered as erroneous or biased by most behavioral economists because they conflict with the postulates of rational choice theory, may not be unreasonable. Recognizing as such is important when considering how behavioral insights ought to inform public policy design and implementation. |
| Keywords: | expected utility theory; prospect theory; reflection effect; risk intensity; risk sensitivity theory |
| JEL: | B21 C12 C91 |
| Date: | 2024–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123966&r= |