Averting risk in the face of large losses: Bernoulli vs. Tversky and Kahneman

We experimentally question the assertion of Prospect Theory that people display risk attraction in choices involving high-probability losses. Indeed, our experimental participants tend to avoid fair risks for large (up to ? 90), high-probability (80%) losses. Our research hinges on a novel experimental method designed to alleviate the house-money bias that pervades experiments with real (not hypothetical) loses.Our results vindicate Daniel Bernoulli?s view that risk aversion is the dominant attitude,But, contrary to the Bernoulli-inspired canonical expected utility theory, we do find frequent risk attraction for small amounts of money at stake.In any event, we attempt neither to test expected utility versus nonexpected utility theories, nor to contribute to the important literature that estimates value and weighting functions. The question that we ask is more basic, namely: do people display risk aversion when facing large losses, or large gains? And, at the risk of oversimplifying, our answer is yes.

Variación contextual de la diagnosticidad y verificación empírica del modelo de Tversky.

1) Establecer medidas empíricas sobre el parecido familiar para una serie de categorías y su relación con el índice de tipicidad. 2) Investigar sobre la diagnosticidad de los atributos de las categorías, teniendo en cuenta un determinado contexto. 3) Comprobar la saliencia de los rasgos categoriales, variando las diferentes situaciones de contexto. Invest.I. 500 estudiantes de Magisterio y Psicología, 320 mujeres y 180 varones, con edades entre 18 y 25 años. Invest.II. 100 sujetos de Magisterio y Psicología, 63 mujeres y 37 varones, con edades entre 18 y 25 años. Invest.III. 100 sujetos de Magisterio y Psicología, 61 eran mujeres y 39 varones con edades entre 18 y 25 años. Invest.IV. 100 sujetos con las mismas características que en la invest. anterior. Invest.V. 200 estudiantes de Magisterio y primero de Psicología. Invest.I: estímulos: 50 ítems, categorías básicas, pertenecientes a 5 categorías supraordinadas, utilizadas por Rosh y seleccionadas y reordenadas por Rodríguez Pérez, 1981, en el medio cultural de Canarias. A cada categoría correspondían 10 ítems, 5 de más alta tipicidad y 5 de más baja tipicidad. Las categorías elegidas fueron: mueble, arma, vehículo, vestido, fruto. Se les pidió a los sujetos que hicieran una lista de atributos para cada ítem, durante minuto y medio. Invest.II. se emplearon 15 categorías básicas para cada categoría supraordinada. Invest.III. se emplearon 162 ítems, correspondiendo a cada grupo 30 ítems, 15 de la investigación anterior y 5 nuevos. Invest.IV. 100 ítems, distribuídos en 5 grupos, cada grupo con 20 ítems. Invest.V. 50 ítems para cada una de las formas empíricas A y B, que corresponden a los dos grupos de clasificación de los ítems. Invest.I. 5 Variantes de cuadernillos con 10 hojas de respuesta cada uno, con 10 ítems impresos. Un reloj. Invest.II. e invest.III. cuadernillos con 5 hojas de respuesta para cada sujeto. Invest.IV. el mismo que en las dos investigaciones anteriores. Invest.V. dos tipos de cuadernillos, forma A y forma B, de las mismas características que los anteriores. 1) Se dan pocos atributos que fueran válidos a la totalidad de los miembros de la categoría. 2) Correlacionó significativamente la estructura de semejanza de familia con la tipicidad de los elementos, salvo en el caso de fruta. La tipicidad de los miembros de una categoría está asociada a la microestructura de sus atributos,concretamente al grado de parecido familiar. 3) Para los criterios diagnósticos se cumple que no se apoyan en los rasgos compartidos por todos los elementos de la categoría, sino en los compartidos por algunos de ellos. 4) La clara influencia del grupo o situación contextual para el valor diagnóstico. 5) La disminución del tamaño del grupo, repercute en las elecciones del criterio diagnóstico para dicho grupo. Los individuos definen con bastante coincidencia los elementos que pertenecen a una categoría. Existe un principio jerárquico que guía la estructura de las categorías. La determinación de los rasgos de un elemento no es fija ni definida, su saliencia o definitoriedad depende de la situación contextual donde los elementos se presenten.

Paradoxos em finanças: teoria moderna versus finanças comportamentais

Este artigo aborda as finanças comportamentais, uma das inovações mais importantes e controversas em finanças, que confrontam o paradigma tradicionalmente aceito, baseado na moderna teoria financeira. Inicialmente realiza-se uma síntese de potenciais problemas de tomada de decisão, exemplificando-se alguns aspectos não racionais que constituem importantes paradoxos em finanças. Após uma discussão da teoria de prospecto, replicam-se numa amostra brasileira os experimentos seminais de Kahneman e Tversky. São discutidas diversas situações que violam premissas da teoria da utilidade esperada, base da teoria moderna de finanças. Os resultados empíricos mostram que se mantêm as evidências de diversos vieses de percepção em decisões, independentemente de aspectos relacionados com a evolução do mercado e com a cultura ou nacionalidade dos indivíduos. O distanciamento entre a teoria moderna de finanças e a prática em decisões financeiras sugere a abordagem das finanças comportamentais como uma alternativa

Influence of discount price announcements on consumer's behavior

The theoretical framework that underpins this research study is based on the Prospect Theory formulated by Kahneman and Tversky, and Thaler's Mental Accounting Theory. The research aims to evaluate the consumers' behavior when different patterns of discount are offered (in percentage and absolute value and for larger and smaller discounts). Two experiments were conducted to explore these patterns of behavior and the results that were obtained supported the view that the framing effect was a common occurrence. The patterns of choice of individuals in a sample were found to be different due to changes in the ways discounts were offered. This can be explained by the various ways of presenting discount rates that had an impact on the influence of purchase intentions, recommendations and quality perception.

How human schematization and systematic errors take effect on sketch map formalizations

Dissertation submitted in partial fulfilment of the requirements for the Degree of Master of Science in Geospatial Technologies

Three essays on the psychology of investment and financial markets

Préface My thesis consists of three essays where I consider equilibrium asset prices and investment strategies when the market is likely to experience crashes and possibly sharp windfalls. Although each part is written as an independent and self contained article, the papers share a common behavioral approach in representing investors preferences regarding to extremal returns. Investors utility is defined over their relative performance rather than over their final wealth position, a method first proposed by Markowitz (1952b) and by Kahneman and Tversky (1979), that I extend to incorporate preferences over extremal outcomes. With the failure of the traditional expected utility models in reproducing the observed stylized features of financial markets, the Prospect theory of Kahneman and Tversky (1979) offered the first significant alternative to the expected utility paradigm by considering that people focus on gains and losses rather than on final positions. Under this setting, Barberis, Huang, and Santos (2000) and McQueen and Vorkink (2004) were able to build a representative agent optimization model which solution reproduced some of the observed risk premium and excess volatility. The research in behavioral finance is relatively new and its potential still to explore. The three essays composing my thesis propose to use and extend this setting to study investors behavior and investment strategies in a market where crashes and sharp windfalls are likely to occur. In the first paper, the preferences of a representative agent, relative to time varying positive and negative extremal thresholds are modelled and estimated. A new utility function that conciliates between expected utility maximization and tail-related performance measures is proposed. The model estimation shows that the representative agent preferences reveals a significant level of crash aversion and lottery-pursuit. Assuming a single risky asset economy the proposed specification is able to reproduce some of the distributional features exhibited by financial return series. The second part proposes and illustrates a preference-based asset allocation model taking into account investors crash aversion. Using the skewed t distribution, optimal allocations are characterized as a resulting tradeoff between the distribution four moments. The specification highlights the preference for odd moments and the aversion for even moments. Qualitatively, optimal portfolios are analyzed in terms of firm characteristics and in a setting that reflects real-time asset allocation, a systematic over-performance is obtained compared to the aggregate stock market. Finally, in my third article, dynamic option-based investment strategies are derived and illustrated for investors presenting downside loss aversion. The problem is solved in closed form when the stock market exhibits stochastic volatility and jumps. The specification of downside loss averse utility functions allows corresponding terminal wealth profiles to be expressed as options on the stochastic discount factor contingent on the loss aversion level. Therefore dynamic strategies reduce to the replicating portfolio using exchange traded and well selected options, and the risky stock.

Excess Entry, Ambiguity Seeking, and Competence: An Experimental Investigation

Excess entry refers to the high failure rate of new entrepreneurial ventures. Economic explanations suggest 'hit and run' entrants and risk-seeking behavior. A psychological explanation is that people (entrepreneurs) are overconfident in their abilities (Camerer & Lovallo, 1999). Characterizing entry decisions as ambiguous gambles, we alternatively suggest following Heath and Tversky (1991) that people seek ambiguity when the source of uncertainty is related to their competence. Overconfidence, as such, plays no role. This hypothesis is confirmed in an experimental study that also documents the phenomenon of reference group neglect. Finally, we emphasize the utility that people gain from engaging in activities that contribute to a sense of competence. This is an important force in economic activity that deserves more explicit attention.

Excess entry, ambiguity seeking and competence: An experimental investigation

Excess entry refers to the high failure rate of new entrepreneurial ventures. Economic explanations suggest 'hit and run' entrants and risk-seeking behavior. A psychological explanation is that people (entrepreneurs) are overconfident in their abilities (Camerer & Lovallo, 1999). Characterizing entry decisions as ambiguous gambles, we alternatively suggest following Heath and Tversky (1991) that people seek ambiguity when the source of uncertainty is related to their competence. Overconfidence, as such, plays no role. This hypothesis is confirmed in an experimental study that also documents the phenomenon of reference group neglect. Finally, we emphasize the utility that people gain from engaging in activities that contribute to a sense of competence. This is an important force in economic activity that deserves more explicit attention.

The gain-loss asymmetry and single-self preferences

Kahneman and Tversky asserted a fundamental asymmetry between gains and losses, namely a reflection effect which occurs when an individual prefers a sure gain of $ pz to anuncertain gain of $ z with probability p, while preferring an uncertain loss of $z with probability p to a certain loss of $ pz.We focus on this class of choices (actuarially fair), and explore the extent to which thereflection effect, understood as occurring at a range of wealth levels, is compatible with single-self preferences.We decompose the reflection effect into two components, a probability switch effect,which is compatible with single-self preferences, and a translation effect, which is not. To argue the first point, we analyze two classes of single-self, nonexpected utility preferences, which we label homothetic and weakly homothetic. In both cases, we characterize the switch effect as well as the dependence of risk attitudes on wealth.We also discuss two types of utility functions of a form reminiscent of expected utility but with distorted probabilities. Type I always distorts the probability of the worst outcome downwards, yielding attraction to small risks for all probabilities. Type II distorts low probabilities upwards, and high probabilities downwards, implying risk aversion when the probability of the worst outcome is low. By combining homothetic or weak homothetic preferences with Type I or Type II distortion functions, we present four explicit examples: All four display a switch effect and, hence, a form of reflection effect consistent a single self preferences.

The underestimation of compliance to direct help requests explained by adaptive sampling

Helping behavior is any intentional behavior that benefits another living being or group (Hogg & Vaughan, 2010). People tend to underestimate the probability that others will comply with their direct requests for help (Flynn & Lake, 2008). This implies that when they need help, they will assess the probability of getting it (De Paulo, 1982, cited in Flynn & Lake, 2008) and then they will tend to estimate one that is actually lower than the real chance, so they may not even consider worth asking for it. Existing explanations for this phenomenon attribute it to a mistaken cost computation by the help seeker, who will emphasize the instrumental cost of “saying yes”, ignoring that the potential helper also needs to take into account the social cost of saying “no”. And the truth is that, especially in face-to-face interactions, the discomfort caused by refusing to help can be very high. In short, help seekers tend to fail to realize that it might be more costly to refuse to comply with a help request rather than accepting. A similar effect has been observed when estimating trustworthiness of people. Fetchenhauer and Dunning (2010) showed that people also tend to underestimate it. This bias is reduced when, instead of asymmetric feedback (getting feedback only when deciding to trust the other person), symmetric feedback (always given) was provided. This cause could as well be applicable to help seeking as people only receive feedback when they actually make their request but not otherwise. Fazio, Shook, and Eiser (2004) studied something that could be reinforcing these outcomes: Learning asymmetries. By means of a computer game called BeanFest, they showed that people learn better about negatively valenced objects (beans in this case) than about positively valenced ones. This learning asymmetry esteemed from “information gain being contingent on approach behavior” (p. 293), which could be identified with what Fetchenhauer and Dunning mention as ‘asymmetric feedback’, and hence also with help requests. Fazio et al. also found a generalization asymmetry in favor of negative attitudes versus positive ones. They attributed it to a negativity bias that “weights resemblance to a known negative more heavily than resemblance to a positive” (p. 300). Applied to help seeking scenarios, this would mean that when facing an unknown situation, people would tend to generalize and infer that is more likely that they get a negative rather than a positive outcome from it, so, along with what it was said before, people will be more inclined to think that they will get a “no” when requesting help. Denrell and Le Mens (2011) present a different perspective when trying to explain judgment biases in general. They deviate from the classical inappropriate information processing (depicted among other by Fiske & Taylor, 2007, and Tversky & Kahneman, 1974) and explain this in terms of ‘adaptive sampling’. Adaptive sampling is a sampling mechanism in which the selection of sample items is conditioned by the values of the variable of interest previously observed (Thompson, 2011). Sampling adaptively allows individuals to safeguard themselves from experiences they went through once and turned out to lay negative outcomes. However, it also prevents them from giving a second chance to those experiences to get an updated outcome that could maybe turn into a positive one, a more positive one, or just one that regresses to the mean, whatever direction that implies. That, as Denrell and Le Mens (2011) explained, makes sense: If you go to a restaurant, and you did not like the food, you do not choose that restaurant again. This is what we think could be happening when asking for help: When we get a “no”, we stop asking. And here, we want to provide a complementary explanation for the underestimation of the probability that others comply with our direct help requests based on adaptive sampling. First, we will develop and explain a model that represents the theory. Later on, we will test it empirically by means of experiments, and will elaborate on the analysis of its results.

A teoria da perspectiva e as mudanças de preferência no mainstream: um prospecto Lakatoseano

The theory of the perspective and the changes of preference in the mainstream: a Lakatosean prospect. For many decades over the 20th Century, the mainstream of economics adopted a normative and axiomatic theory of individual behavior in which maximizing procedures were carried out by rationally unbounded agents. This status has been challenged on many grounds and alternative views from fields like psychology have found a way into the core of economics research frontier. Prospect theory, developed by psychologists Daniel Kahneman and Amos Tversky since the 1970s, has provided a more empirical, inductive and descriptive theory of decision making. It has made significant inroads into mainstream microeconomics, shaking the habits of some of its practitioners. This paper first takes stock of its main developments and then uses a Lakatosian framework to draw out its negative and positive heuristics. In what follows, its heuristics are compared to those of traditional rational decision-making theories. The differences between them are highlighted, pointing to changes in the mainstream of the profession and to new opportunities for research.

Der Einfluss von Ankern auf Verkaufsergebnisse in telefonischen Verkaufsgesprächen

Numerische Urteile wie Schätzungen oder Prognosen sind anfällig für Ankereffekte. Ein in eine Entscheidungssituation willkürlich eingeführter numerischer Wert – der Anker – beeinflusst oft das Urteil im Sinne einer Assimilation des Urteils an diesen Wert. Bei Kaufentscheidungen fließt das Ergebnis eines Vergleichs des Produktpreises mit einem Referenzpreis, einem numerischen Wert, in die Kaufentscheidung mit ein. Unter Orientierung an die Prospekttheorie von Kahneman & Tversky kann dieser Referenzpreis in Form eines implementierten Ankers variiert werden. Die vorgelegte interdisziplinäre Arbeit wendet psychologisches Fachwissen in den Wirtschaftswissenschaften an. Sie beschäftigt sich mit den Möglichkeiten bei telefonischen Verkaufsgesprächen, gezielt Anker zu Erhöhung der Verkaufsquote einzusetzen. Der Anker wird in drei unterschiedlichen Experimenten entweder durch den Preis eines zusätzlich angebotenen Produkts, durch das Einbringen eines belanglos scheinenden numerischen Wertes, wie die Anzahl an bereits getätigten Anrufen, oder in Form einer Schätzfrage in das Verkaufsgespräch implementiert. Es wird dabei festgestellt, dass durch einen im Vergleich zum verkaufenden Produkt höheren numerischen Wert, dem Anker, die Verkaufsquote erhöht werden kann. Das Neuartige an der Arbeit liegt vor allem im Aufzeigen der Einfachheit solcher ökonomisch effektiver Ankersetzungen in Verkaufsgesprächen. Willkürlich in eine Kaufsituation eingeführte numerische Werte können - analog zu ihrem Einfluss in Urteilssituationen - auch Kaufentscheidungen in einem realen Markt beeinflussen.

Evaluación Psicológica de la Toma de Decisiones Éticas de Riesgo en Entorno Organizacional: Revisión Teórica

Este trabajo de investigación explora el proceso de toma de decisiones fundamentado desde la perspectiva psicológica. El campo de interés está centrado en la toma de decisiones éticas a nivel organizacional y las consecuencias que las zonas grises o las conductas de riesgo repercuten en las dinámicas económicas y sociales. Con base en el análisis de los escándalos financieros más importantes de Europa, Estados Unidos y Colombia, y la literatura ofrecida por las ciencias sociales, la ética y las ciencias económicas se reconstruye una recopilación teórica de los aportes que los modelos psicológicos aplicados pueden dar al campo de la consultoría y el funcionamiento organizacional como también al estudio y análisis de los comportamientos anti éticos en empresas.

La bondad de la metáfora : estudio normativo basados en los modelos de similitud.

Confirmar o rechazar las hipótesis: a) las mejores metáforas son aquellas que relacionan los elementos de categorías muy lejanas, b) existen asimetrías significativas y sistemáticas en las relaciones de similitud entre los dos términos de una expresión metafórica. Primer estudio: 150 sujetos, estudiantes de primero y cuarto de Psicología. Agrupados en dos bloques, cada uno de los cuales contenía el 50 por ciento del total de la muestra. Segundo estudio: 150 sujetos de primero,segundo y tercero de Psicología. Tercer estudio: 320 sujetos, estudiantes de la Escuela Superior de Formación del Profesorado de EGB, pertenecientes a primero, segundo y tercero. Se realizaron tres estudios normativos: Primero: obtener una medida de las distancias semánticas existentes entre las categorías seleccionadas como base de nuestro estudio, distancia intercategorial; se planteó un diseño intergrupo con dos niveles A y B. Segundo : medir la puntuación de 20 elementos de cada una de las 8 categorías estudiadas, respecto a dos dimensiones: fuerza y prestigio; se planteó un diseño intragrupo. Tercero: se presentaron a los sujetos las 280 metáforas elaboradas; también se elaboraron las 'formas simétricas' de estas metáforas, obteniendo un total de 560 metáforas, de las cuales medimos el grado de bondad en función de su grado de significado; se planteó un diseño intergrupo con cuatro niveles. Primer estudio: 2 cuadernillos, A y B, conteniendo cada uno de ellos 28 pares de categorías; el cuadernillo B presentaba cada par en orden inverso. Segundo estudio: cuadernillos con 8 listas, una por cada categoría, de 20 elementos cada una. Tercer estudio: 4 cuadernillos, conteniendo cada uno una lista de 138 metáforas. 1) Las mejores metáforas son aquellas que: a) comparan elementos escogidos por su puntuación en prestigio, b) poseen tenor y un vehículo que ocupan primeros lugares en sus respectivas categorías, c) tienen por tenor un elemento que pertenezca a las categorías: lideres mundiales o personajes históricos. 2) Rechazamos la hipótesis de Tourangeau y Sternberg sobre la relacion entre la bondad metafórica y distancia intercategorial. 3) Se rechaza la hipótesis de Tversky y Ortony sobre la existencia de asimetría en las expresiones direccionales. 4) La hipótesis de Tversky sobre la simetría existente en las comparaciones de tipo no direccional, queda verificada. 1) Existe similitud en las relaciones de similitud expresadas de forma no direccional. 2) No existe asimetría en la totalidad de las metáforas analizadas. 3) No hay relación entre la bondad y la distancia semántica existente entre las categorias. 4) Una metáfora obtendrá puntuaciones más altas si está elaborada en función del prestigio de sus elementos, y no en función de su fuerza, o según posea un tenor humano o uno animal. 5) No existe una metacognición de la metáfora, estando los juicios intercategoriales basados únicamente en la similitud semántica. Fecha finalización tomada del código del documento.