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on Neuroeconomics |
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Issue of 2011‒10‒22
two papers chosen by |
| By: | Paolo Crosetto (Max Planck Institute for Economics, Jena); Alexia Gaudeul (Graduate School "Human Behavior in Social and Economic Change" (GSBC), Friedrich Schiller University, Jena) |
| Abstract: | Consumers make mistakes when facing complex purchasing decision problems but if at least some consumers choose only among offers that are easy to compare with others then firms will adopt common ways to present their offers and thus make choice easier (Gaudeul and Sugden, 2011). We design an original experiment to identify consumers' choice heuristics in the lab. Subjects are presented with menus of offers and do appear to favour offers that are easy to compare with others in the menu. While not all subjects do so, this is enough to deter firms from introducing spurious complexity in the way they present products. |
| Keywords: | Bounded Rationality, Cognitive Limitations, Common Standards, Consumer Choice, Experimental Economics, Heuristics, Libertarian Paternalism, Pricing Formats, Spurious Complexity |
| JEL: | D83 L13 D18 |
| Date: | 2011–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2011-044&r=neu |
| By: | Massimo Guidolin; Francesca Rinaldi |
| Abstract: | Empirical research suggests that investors’ behavior is not well described by the traditional paradigm of (subjective) expected utility maximization under rational expectations. A literature has arisen that models agents whose choices are consistent with models that are less restrictive than the standard subjective expected utility framework. In this paper we survey the literature that has explored the implications of decision-making under ambiguity for financial market outcomes, such as portfolio choice and equilibrium asset prices. We conclude that the ambiguity literature has led to a number of significant advances in our ability to rationalize empirical features of asset returns and portfolio decisions, such as the failure of the two-fund separation theorem in portfolio decisions, the modest exposure to risky securities observed for a majority of investors, the home equity preference in international portfolio diversification, the excess volatility of asset returns, the equity premium and the risk-free r ate puzzles, and the occurrence of trading break-downs. JEL codes: G10, G18, D81. Keywords: ambiguity, ambiguity-aversion, participation, liquidity, asset pricing.By Massimo Guidolin, Francesca Rinaldi |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:417&r=neu |