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on Cognitive and Behavioural Economics |
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Issue of 2024‒09‒23
three papers chosen by Marco Novarese, Università degli Studi del Piemonte Orientale |
| By: | J. Lucas Reddinger |
| Abstract: | Is an option especially tempting when it is both immediate and certain? I test the effect of risk on the present-bias factor given quasi-hyperbolic discounting. In my experiment workers allocate about thirty to fifty minutes of real-effort tasks between two weeks.I study dynamic consistency by comparing choices made two days in advance of the work-day with choices made when work is imminent. My novel design permits estimation of present bias using a decision with a consequence that is both immediate and certain. I find greater present bias when the consequence is certain.This finding has implications for any economic decision involving a present-biased decision-maker, including labor contracting and consumer good pricing. I offer a methodological remedy for experimental economists. |
| Keywords: | present bias, dynamic inconsistency, quasi-hyperbolic discounting, timepreferences, risk preferences, immediacy effect, certainty effect, experimental economics |
| JEL: | C91 D80 D90 |
| Date: | 2023–11 |
| URL: | https://d.repec.org/n?u=RePEc:pur:prukra:1338 |
| By: | Andries, Marianne; Bianchi, Milo; Huynh, Karen; Pouget, Sébastien |
| Abstract: | In an investment experiment, we show variations in information affect belief and decision behaviors within the information-beliefs-decisions chain. Subjects observe the time series of a risky asset and a signal that, in random rounds, helps predict returns. When they perceive the signal as useless, subjects form extrapolative forecasts, and their investment decisions underreact to their beliefs. When they perceive the signal as predictive, the same subjects rationally use it in their forecasts, they no longer extrapolate, and they rely significantly more on their forecasts when making risk allocations. Analyzing investments without observing forecasts and information sets leads to erroneous interpretations. |
| Keywords: | Return Predictability, Expectations, Long-Term Investment, Extrapolation, Model Uncertainty. |
| JEL: | G11 G41 D84 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129666 |
| By: | Caferra, Rocco; Morone, Andrea; Pierno, Donato |
| Abstract: | This study explores how people learn and adapt their risk preferences using different elicitation methods, challenging the neoclassical theory that suggests preferences are fixed. Instead, we show that preferences can change. However, we aim to explain whether the observed changes are due to a real change in the measure, i.e. individuals' risk preferences, or if they are attributable to the limitations of the measurement tool, i.e. the specific risk elicitation method employed. We use a detailed experimental design to examine the stability and consistency of risk preferences using a hands-on learning experience. Our main goals are to assess how consistent risk choices are, understand how preferences remain stable or change over time, and evaluate the effectiveness of different elicitation methods like the Multiple Price List and Ordered Lottery Selection ones. On the one hand, results demonstrate that risk preferences are variable and adaptable, and this can be partly due to the role of experience-based learning. On the other hand, we observe how Multiple Price List methods, even if more complex, are more accurate in identifying risk preferences and then in improving measurement stability and accuracy. |
| Keywords: | Risk preferences; Experiments; Elicitation Methods; Learning. |
| JEL: | D81 D90 |
| Date: | 2024–06–13 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121590 |