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ambiguity seeking for unlikely
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- PT: data on probability weighting ; inverse-S ; ambiguity seeking for unlikely ; coalescing; natural sources of ambiguity
ambiguity seeking for unlikely; inverse-S Option traders do EV for given probabilities, and subadditivity for unknown probabilities; ascribe it to subadditivity in judged probability. P. 7: “Note that risk can be viewed as a special case of uncertainty where probability is defined via a standard chance device so that the probabilities of outcomes are known,” The value function is elicited by asking for equivalences (p, x; q, c; 1–pzq, 0) ~ (p, a; q, b; 1pq,0), x > a > b > c, where all values except x were set by the experimentor and participants should provide x. For example, this paper took a = $100, b = $50, b = $25. Expt. 1: p = q = 1/6. The median answer found was x = $125. The authors conclude that that implies a linear value function under cumulative prospect theory (p. 8, l. 1518). However, that need not be true in general. It will depend on p and q chosen and, no matter what p and q are, on the probability weighting function (which may be different for different individuals). linear utility for small stakes: their findings remain unaffected if they assume linear utility. real incentives: random incentive system %} Fox, Craig R., Brett A. Rogers, & Amos Tversky (1996) “Options Traders Exhibit Subadditive Decision Weights,” Journal of Risk and Uncertainty 13, 5–17. {% %} Fox, Craig R., & Yuval Rottenstreich (2003) “Partition Priming in Judgment under Uncertainty,” Psychological Science 14, 195–200. {% They introduce monadic testing for the Ellsberg urn test of ambiguity aversion. That is, they do not let subjects choose between known and unknown urn, but present each in isolation and ask for evaluations (certainty equivalents, thus avoiding contrast effects. Ambiguity aversion may not be genuine, but may be just a contrast effect. They indeed find that ambiguity aversion then disappears, although later studies such as by Chow & Sarin suggest that ambiguity aversion is reduced but does not disappear under monadic testing. only gain outcomes; inverse-S: argue that nonadditive models can describe source sensitivity but not so easily source preference because the latter may be a comparative effect, see P. 601: “This suggests that models based on decision weights or nonadditive probabilities (e.g., Quiggin [1982]; Gilboa [1987]; Schmeidler [1989]; Tversky & Wakker [1995, Econometrica]) can accommodate source sensitivity, but they do not provide a satisfactory account of source preference because they do not distinguish between comparative and noncomparative evaluation.” ambiguity seeking: the paper finds source preference for betting on football over chance, but less sensitivity for football. So, source sensitivity and preference do not always covary. Study 4 compares WTP both for event and for its complement. But they do not test uniform dominance, but only sums of WTP, so that it is not really source-preference directly tested. P. 893 mentions cases where there is uniform dominance (both the event and its complement have higher CE (certainty equivalent)) for medians. So this is at the median level but not directly at the individual level. %} Fox, Craig R. & Amos Tversky (1995) “Ambiguity Aversion and Comparative Ignorance,” Quarterly Journal of Economics 110, 585–603. {% PT: data on probability weighting; inverse-S; ambiguity seeking for unlikely; coalescing; natural sources of ambiguity The value function is elicited by asking for equivalences (.25, x; .25, c; .50, 0) ~ (.25, a; .25, b; .50, 0), x > a > b > c, where all values except x were set by the experimentor and participants should provide x. They conclude from that that, for value function v, v(x) + v(c) = v(a) + v(b). This is correct !because! they do this only if expected utility is assumed. It would not be true had they (which they didn’t) claimed this under cumulative prospect theory! 1998, p. 883, first column, third paragraph, opening sentence, suggests that what they do is independent of probability weighting. This is not correct. (Other parts of the text also suggest this incorrect claim but less explicitly than the sentence on p. 883.) What follows, in particular the identification of risk attitude with utility, is correct only under expected utility. real incentives: do random incentive system in study 1, not in study 2 it seems. P. 885: they use the terms risk averse / risk neutral /risk seeking as equivalent to concave / linear / convex utility. This is, again, only because they are doing the analysis in the context of expected utility there. %} Fox, Craig R. & Amos Tversky (1998) “A Belief-Based Account of Decision under Uncertainty,” Management Science 44, 879–895. Reprinted with minor changes in Daniel Kahneman & Amos Tversky (2000, eds.) Choices, Values and Frames, Ch. 6, pp. 118–142, Cambridge University Press, New York. {% utility elicitation %} Fox, Craig R. & Peter P. Wakker (1999) “Value Function Elicitation: A Comment on Craig R. Fox & Amos Tversky, “A Belief-Based Account of Decision under Uncertainty”.” This paper was rejected by Management Science and by the Journal of Risk and Uncertainty. Link to paper
Fox, Craig R. & Martin Weber (2002) “Ambiguity Aversion, Comparative Ignorance, and Decision Context,” Organizational Behavior and Human Decision Processes 88, 476–498. {% %} Foxall, Gordon R. (1986) “Theoretical Progress in Consumer Psychology: The Contribution of a Behavioural Analysis of Choice,” Journal of Economic Psychology 7, 393–414. {% Intro to special issue on behavioral economics in managerial economics. %} Foxall, Gordon R.(2016) “Operant Behavioral Economics,” Managerial and Decision Economics 37, 215–223. {% Show that subjects with high numeracy have weaker status quo effect, so, weaker loss aversion. (cognitive ability related to risk/ambiguity aversion) So, relates a bias to cognitive sophistication. %} Fraenkel, Liana, Meaghan Cunningham, & Ellen Peters (2015) “Subjective Numeracy and Preference to Stay with the Status Quo,” Medical Decision Making 35, 6–11. {% Mathematical paper using capacities, recommended to me by Jaffray. %} Frank, Andras & Eva Tardos (1988) “Generalized Polymatroids and Submodular Flows,” Mathematical Programming 42, 489–563. {% Cost of decision making à la Marschak is considered. It plays a role in whether it is better to just give patient policy/based treatment or to make individual-patient based decision. %} Frank, Richard G. & Richard J. Zeckhauser (2007) “Custom-Made versus Ready-to-Wear Treatments: Behavioral Propensities in Physicians’ Choices,” Journal of Health Economics 26, 1101–1127. {% %} Frank, Robert H. (1988) “Passions within Reason: The Strategic Value of the Emotions.” Norton, New York. {% preferring streams of increasing income; time preference %} Frank, Robert H. (1989) “Frames of Reference and the Quality of Life,” American Economic Review 79, 80–85. {% conservation of influence: the utility function’s evolutionary role is to reward people with good feelings when they make progress toward survival and reproduction. %} Frank, Robert H. (1992) “Frames of Reference and the Intertemporal Wage Profit.” In George F. Loewenstein & John Elster (1992) Choice over Time, 371–382, Russell Sage Foundation, New York. {% %} Frank, Robert H. (1992) “The Role of Moral Sentiments in the Theory of Intertemporal Choice.” In George F. Loewenstein & John Elster (1992) Choice over Time, 265–286, Russell Sage Foundation, New York. {% Total utility theory; On psychological measurements of well-being. %} Frank, Robert H. (1997) “The Frame of Reference as a Public Good,” Economic Journal 107, 1832–1847. {% %} Frank, Robert H. (2005) “Microeconomics and Behavior.” McGraw-Hill, 6th edn. (ISBN: 0071115498) {% dominance violation by pref. for increasing income: seem to find it %} Frank, Robert H. & Robert M. Hutchens (1993) “Wages, Seniority, and the Demand for Rising Consumption Profiles,” Journal of Economic Behavior and Organization 21, 251–276. {% Predictions of econometric models are contrasted with those of experts. They propose a new model to make the comparison. %} Franses, Philip-Hans, Michael McAleer, & Rianne Legerstee (2009) “Expert Opinon versus Expertise in Forecasting,” Statistica Neerlandica 63, 334–346. {% §7.1: truncated regression %} Franses, Philip-Hans & Richard Paap (2001) “Quantitative Models in Marketing Research.” Cambridge University Press, Cambridge, UK. {% %} Fraser, Donald A.S. (1964) “Local Conditional Sufficiency,” Journal of the Royal Statistical Society, Ser. B, 26, 52–62. {% P. 62 refers to Cournot and someone called Divisia that, for practice, very small probabilities may be assumed to be zero %} Fréchet, Maurice (1948) “L’Estimation Statistique des Paramètres” (Abstract), Econometrica 16, 600–602. {% Seems to shows that, with marginals given, correlation is maximal under comonotonicity. Seems to be shown before by Hoeffding (1940). %} Fréchet, Maurice (1951) “Sur les Tableaux de Correlation dont les Marges Sont Donnés,” Annales de l’Université de Lyon Sect. A, Series 3, 14, 53–77. {% %} Frederick, Shane (1999) “Discounting, Time Preference, and Identity,” Ph.D. Thesis, Department of Social and Decision Sciences, Carnegie Mellon University. {% discounting normative: mentions philosophical debates about it, with central the question of the extent to which your future self is to be identified with your present self. But then does what psychologists typically do: does an experiment asking people how similar they are to their future selves, on a 0-100 scale. Has correlation 0 with their discounting (all hypothetical). Probably because meaningless questions. The paper ends with a funny argument, maybe a joke, raised by Parfit apparently. It is that, even if it is not irrational to discount, it may be immoral because it is unfair to your future self. Next step would then be that you sue your future self knowing it will misbehave? %} Frederick, Shane (2003) “Time Preference and Personal Identity.” In George F. Loewenstein, Daniel Read, & Roy F. Baumeister (2003, eds.) Time and Decision: Economic and Psychological Perspectives on Intertemporal Choice, 89–113, Russell Sage Foundation, New York. {% Compares several elicitation techniques for temporal choice, such as choice, matching, rating, and others. Finds strong discrepancies. %} Frederick, Shane (2003) “Measuring Intergenerational Time Preference: Are Future Lives Valued Less?,” Journal of Risk and Uncertainty 26, 39–53. {% paternalism/Humean-view-of-preference: nice discussion. More than that, it is one of the nicest papers I ever read on this topic. (Another nice paper on this topic is Tversky & Kahneman (1981), my no 1 paper in all of decision theory.) Paper considers simple cognitive test (with clearly correct/incorrect answers) and correlates these with choices. Pp. 26/27 starts nicely with a simple question where subjects with correct answer discounted clearly less. Pp. 28-30 gives references. The paper nicely on each occasion challenges the unfruitful “De gustibus non est disputandem” and consumer sovereignty by taking examples of overly extreme discounting (rather $3400 this month than $3800 next month; p. 31) and overly extreme risk aversion (rather $500 for sure than (0.15: 1 million; 0.85: 0)) that are so clearly over-extreme that the consumer sovereignty people will have a very hard time. cognitive ability related to discounting: cognitive ability related to risk/ambiguity aversion: P. 32: fewer studies have been done for risk than for intertemporal choice on correlations with cognitive tasks, but then cites some for risk. This paper finds, strangely enough, that intelligent people not only are more risk seeking when that means going for expected value (which can be taken to be rational), but also when that means going against expected value (which can be taken to be irrational). Unfortunately for me no data/discussion on inverse-S, and only on risk aversion. gender differences in risk attitudes: p. 38: "expressed loosely, being smart makes women patient and makes men take more risks." I like in particular the very balanced discussion section (p. 38 ff.). The author makes clear that he prefers what I call the paternalistic approach of decision theory, without however ever crossing the line of just shouting out own opinions as other less-nuanced authors may do (am worried that I may belong to the latter category sometimes). Nice discussion with many references to people discussing that de gustibus EST disputandem (so I dropped the "non" from the known saying). P. 41 explains that it is good to follow your brilliant neighbor on mortgage choice, but not necessarily so to follow Einstein in preference for apples over oranges. I like in particular the discussion that the preference $500 > (0.15: 1 million; 0.85: 0) most probably does not signal that utility is way flatter above $500 than below, but rather that it is "more reasonable" (the author's words) that this choice is to be overridden. The concluding sentence (whatever stance on paternalism, the correlation between intelligence and decision attitude calls for some explanation) nicely gets back the consumer-sovereignty readers. A detail: p. 40 suggests that Savage (1954) coined the term reflective equilibrium, but I am not aware of this term appearing in Savage’s book. Rawls (1971) is usually credited for having coined it. %} Frederick, Shane (2005) “Cognitive Reflection and Decision Making,” Journal of Economic Perspectives 19, 25–42. {% Survey with table on pp. 378-379 indicating whether real incentives/hypothetical choice: for time preferences; P. 358: DC = stationarity; Pp. 362-363 gains are discounted more than losses. P. 381: measurements of discounting usually assume linear utility. P. 382 suggests measuring utility separately and then using it to estimate discounting. %} Frederick, Shane, George F. Loewenstein, & Ted O’Donoghue (2002) “Time Discounting and Time Preference: A Critical Review,” Journal of Economic Literature 40, 351–401. {% bisection > matching: seems to give arguments in favor of matching versus choice. %} Frederick, Shane & Eldar Shafir (2011) “Beyond Preference Reversals,” working paper. {% Introduced duration neglect? %} Fredrickson, Barbara L. & Daniel Kahneman (1993) “Duration Neglect in Retrospective Evaluations of Affective Episodes,” Journal of Personality and Social Psychology 65, 45–55. {% Dutch book; sent to me by Tversky in Feb. 93 %} Freedman, David A. & Roger Purves (1969) “Bayes’ Method for Bookies,” Annals of Mathematical Statistics 40, 1177–1186. {% Tradeoff method citation: seems to argue that making tradeoffs is a crucial aspect of high-quality, rational decision making. %} Freeman, A. Myrick III (1993) “The Measurement of Environmental and Resource Values.” Resources for the Future, Washington DC. {% Criticizes the Safra & Segal criticism of the Rabin’s calibration theorem because they assume reduction of compound lotteries. Shows that without RCLA, say with recursive nonEU, nonEU can accommodate Rabin’s paradox. %} Freeman, David (2015) “Calibration without Reduction for Non-Expected Utility,” Journal of Economic Theory 158, 21–32. {% homebias; they may have introduced it. %} French, Kenneth R. & James M. Poterba (1991) “Investor Diversification and International Equity Markets,” American Economic Review 81, 222–226. {% %} French, Simon (1985) “Groups Consensus Probability Distributions: A Critical Survey.” In Jose M. Bernardo, Morris H. DeGroot, Dennis V. Lindley, & Adrian F.M. Smith (eds.) Bayesian Statistics 2: Proceedings of the Second Valencia International Meeting, North-Holland, Amsterdam. {% %} French, Simon (1986) “Decision Theory (An Introduction to the Mathematics of Rationality).” Ellis Horwood Limited/Wiley, New York. {% %} French, Simon & Marilena Vassiloglou (1986) “Strength of Performance and Examination Assessment,” British Journal of Mathematical and Statistical Psychology 39, 1–14. {% Point out that it can be nice for different biases if they neutralize each other. %} Frenkel, Sivan, Yuval Heller, & Roee Teper (2014) “Endowment as a Blessing,” working paper. {% intuitive versus analytical decisions: the following cite is usually ascribed to Freud, although I know no source: ”When making a decision of minor importance, I have always found it advantageous to consider all the pros and cons. In vital matters, however, such as the choice of a mate or a profession, the decision should come from the unconscious, from somewhere within ourselves. In the important decisions of personal life, we should be governed, I think, by the deep inner needs of our nature.” %} Freud, Sigmund (date unknown) {% %} Freudenthal, Hans (1965) Review of Kyburg & Smokler (1964) Nieuw Archief voor Wiskunde 13, 168–173. {% %} Freudenthal, Hans (1981) “L.E.J. Brouwer—Topoloog, Intuitionist, Filosoof,” Nieuw Archief voor Wiskunde 29, 249–253. {% Thom says it’s a magnificant book for learning statistics. Bit too “steep,” i.e., too fast for psychology students. Does correlation only at the back, after hypothesis testing. %} Freund, John E. (1952) “Modern Elementary Statistics.” Prentice/Hall, London. {% Political economy model with loss aversion and reference dependence, with implications for protection, lobbying, free trade, explaining protections of the US steel industry since 1980. %} Freund, Caroline & Özden, Çağlar (2008) “Trade Policy and Loss Aversion,” American Economic Review 98, 1675–1691. {% real incentives/hypothetical choice: part I is on the crowding-out effect; i.e., that real incentives can destroy intrinsic motivation. %} Frey, Bruno S. (1997) “Not Just for the Money; An Economic Theory of Personal Motivation.” Edward Elgar Publishing, Brookfield, US. {% crowding-out: seems to show/argue that distrustful public laws reduce tax morale and, thereby, enhance tax evasion. %} Frey, Bruno S. (1997) “A Constitution for Knaves Crowds Out Civic Virtues,” Economic Journal 107, 1043–1053. {% %} Frey, Bruno S. (2008) “Happiness. A Revolution in Economics.” The MIT Press, Cambridge. {% %} Frey, Bruno S., & Reiner Eichenberger (1989) “Should Social Scientists Care About Choice Anomalies?,” Rationality and Society 1, 101–122. {% crowding-out: extensive review. §3.2.1 mentions extensive investigations from the psychological literature. Mentions, for example, the meta-analytic study by Deci, Koestner, & Ryan (1999) on 128 studies. Throughout the paper many examples from the economic literature are given. %} Frey, Bruno S. & Reto Jegen (2001) “Motivation Crowding Theory: A Survey of Empirical Evidence,” Journal of Economic Surveys 15, 589–611. {% crowding-out: seem to find crowding-out for finding sites for locally unwarranted projects. %} Frey, Bruno S. & Felix Oberholzer-Gee (1997) “The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out,” American Economic Review 87, 746–755. {% questionnaire versus choice utility: p. 920: “However, there is a lot of indirect evidence that cardinalism and interpersonal comparability are much less of a problem practically than theoretically.” And arguments are given. People in Switzerland who could vote were more happy over outcomes than people who could not vote. Under the assumption that the outcomes are not systematically better for one group than for the other, the finding can be ascribed to procedural utility generated by voting. P. 925: “Among the economic variables, higher income correlates with higher happiness in a statistically significant way. However, the differences in subjective well-being are rather small.” %} Frey, Bruno S. & Alois Stutzer (2000) “Happiness, Economy and Institutions,” Economic Journal 110, 918–938. {% %} Frey, Bruno S. & Alois Stutzer (2002) “What Can Economics Learn from Happiness Research?,” Journal of Economic Literature 40, 403‑435. {% %} Frey, Bruno S. & Alois Stutzer (2005) “Beyond Outcomes: Measuring Procedural Utility,” Oxford Economic Papers 57, 90–111. {% Argue that a problem for paternalism can be that governments have incentives to manipulate. But then, what do do against that anyhow? Section 4.3, opening sentence, argues that welfarist approaches rest on the implicit assumption that governments cannot manipulate measurements. Oh well. %} Frey, Bruno S. & Alois Stutzer (2012) “The Use of Happiness Research for Public Policy,” Social Choice and Welfare 38, 659–674. {% doi:10.1126/sciadv.1701381 Different introspective iterms correlate reasonably well and seem to capture a risk aversion scale in human beings (the authors did not consider insensitivity). Behavioral measures to not correlate well with these. The authors are enthusiastic about the importance of their work, writing on page x+9: “The present findings have wide-ranging scientific and practical implications:” And, later: “These results have implications for both basic and applied research because a solid measurement of risk preference will be needed to uncover both its biological basis and its consequences for many momentous decisions in the real world.” %} Frey, Renato, Andreas Pedroni, Rui Mata, Jörg Rieskamp, & Ralph Hertwig (2017) “Risk Preference Shares the Psychometric Structure of Major Psychological Traits,” Science Advances 3: e1701381. {% Overestimation of small probabilities %} Fricker, Janet (1997) “Baboon Xenotransplant Fails but Patient Improves,” Lancet 347, 457. {% ambiguity seeking for losses: well, neutrality they seem to find. %} Friedl, Andreas, Katharina Lima Ide Miranda, & Ulrich Schmidt (2014) “Insurance Demand and Social Comparison: An Experimental Analysis,” Journal of Risk and Uncertainty 48, 97–109. {% Consider correlated ambiguity and uncorrelated ambiguity. Men are more ambiguity averse for correlated, but for women it is the same. %} Friedl, Andreas, Patrick Ring, & Ulrich Schmidt (2017) “Gender Differences in Ambiguity Aversion under Different Outcome Correlation Structures,” Theory and Decision 82, 211–219. {% %} Friedman, Daniel (1989) “The S-Shaped Value Function as a Constrained Optimum,” American Economic Review 79, 1243–1248. {% three-prisoners problem; If subjects are shown many resolutions of the game they learn that switching is better. %} Friedman, Daniel (1998) “Monthy Hall’s Three Doors: Construction and Deconstruction of a Choice Anomaly,” American Economic Review 88, 933–946. {% %} Friedman, Milton (1935) “Professor Pigou’s Method for Measuring Elasticities of Demand from Budgetary Data,” Quarterly Journal of Economics 49, 151–163. {% Doesn’t care if model is incorrect, as long as it gives the right predictions. A famous reference for this view. %} Friedman, Milton (1953) “Methodology of Positive Economics.” University of Chicago Press, Chicago. {% A reaction to Robertson (1954). Download 7.23 Mb. Share with your friends:
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