Decision Research On Time Risk And Ambiguity
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Decision Research On Time Risk And Ambiguity
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Author : Yitong Wang
language : en
Publisher:
Release Date : 2011
Decision Research On Time Risk And Ambiguity written by Yitong Wang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with categories.
This dissertation consists of three essays. The first essay explores how to counteract the uncertainty effect bias by appropriately manipulating either the anchoring process or the adjustment process involved in the bias. First, I examine how providing an anchor prior to judging the value of the lottery affects individuals' judgments, and find that anchoring on the worst outcome counteracts the uncertainty effect. Then I investigate if omitting information about the probability of the outcomes to create an ambiguous lottery affects individuals' judgments, and find that this is not sufficient to counteract the uncertainty effect. Finally, I explore if introducing additional cognitive load dampens over-adjustment and thus affect individuals' judgments, and find that additional cognitive load is able to counteract the uncertainty effect bias. In an intertemporal choice context, the second essay investigates decision makers' subjective perception of the temporal duration between now and the time they would receive future payments. I show that participants' subjective perceptions of temporal duration are not independent of the outcome magnitudes, where larger monetary outcomes are associated with shorter subjective time perception (experiments 1 & 2). Furthermore, this difference in temporal perception can help us explain the magnitude effect. My results replicate the magnitude effect when taking only objective time into account but show a constant discount rate when taking subjective time perception into account (experiment 3). The third essay investigates the impacts of an ambiguous time on decision making over time. In the first experiment, employing hypothetical scenarios and a between-subjects design, I found that in some situations, decision makers may discount more when facing an ambiguous time delay than facing the end of the ambiguous span. Furthermore, a reversed magnitude effect, the gain/loss asymmetry, and the short term/long term asymmetry phenomenon were observed in experiment 1. In experiment 2, I tested the effects we found in experiment 1 with real payoffs. First, the observed effect that people over-discount an outcome with an ambiguous realizing time was found only in individual level data analyses. Second, I found that the short term/long term asymmetry appeared in all cases across different conditions and experiment design.
Risk Ambiguity And Decision
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Author : Daniel Ellsberg
language : en
Publisher: Taylor & Francis
Release Date : 2001
Risk Ambiguity And Decision written by Daniel Ellsberg and has been published by Taylor & Francis this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001 with Business & Economics categories.
First Published in 2001. Routledge is an imprint of Taylor & Francis, an informa company.
An Experimental Study Of Risk Ambiguity And Market Behaviour
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Author : Timothy Robert Capon
language : en
Publisher:
Release Date : 2010
An Experimental Study Of Risk Ambiguity And Market Behaviour written by Timothy Robert Capon and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with Capitalism categories.
This thesis examines the consequences of Knight{u2019}s (1921) distinction between measurable risk and unmeasurable uncertainty or ambiguity for understanding the relationship between individual decision-making and market behaviour. Knight (1921) argued that investigating this distinction brings differences between theoretical predictions and observed market behaviour into focus. Ellsberg{u2019}s (1961) thought experiment challenged the descriptive validity of subjective expected utility theory. Knightian uncertainty and ambiguity challenge the ability of alternative decision theories to explain the interaction of individual traders within market institutions. Alternative predictions of the effects of Knightian uncertainty and ambiguity on market behaviour include increased price volatility due to Keynes{u2019} (1921) animal spirits (Epstein and Wang, 1994) or more predictable behaviour governed by habit, rules of thumb and imitation (Heiner, 1983; Choi, 1993). This thesis investigates (1) the effect of Knightian uncertainty, ambiguity and ambiguity-aversion on the out-of-equilibrium behaviour of markets, (2) the effect of ambiguity and market interactions on individual decisions, and (3) the relative roles of risk and ambiguity preferences in understanding market behaviour. The key findings of this thesis include lower prices under ambiguity for equivalent probabilities under risk, no evidence that the effects of ambiguity on market prices are eliminated or significantly reduced over time, and an examination of the effect of ambiguity on the volume traded, bid-ask spreads and other aspects of trading behaviour. Most importantly, rather than increased price volatility, more predictable patterns of prices were observed under ambiguity compared with risk. This finding is compatible with traders who use heuristics to guide their behaviour, rather than discovering preferences over time as hypothesised by Plott (1996). Additionally, this thesis presents evidence that market interactions did not eliminate or significantly reduce the effects of ambiguity on individual decisions or over time. These findings emphasize the importance of rule-based behaviours in markets such as price following, momentum trading and similar phenomena that lead traders to pay increased attention to market prices under ambiguity, even when other traders do not have any more information than they do themselves. This suggests that the rules of thumb followed by individual decision-makers to overcome cognitive limitations interact in important ways in market institutions. Past research has suggested the interaction between risk preferences and the out-of-equilibrium behaviour of markets as an important direction for research (Duxbury, 1995; 2005). One of the few studies to relate measured risk preferences to experimental market behaviour, Ang and Schwarz (1985) presented evidence of a connection between less risk-averse behaviour, higher price volatility and faster rates of convergence to equilibrium. However, there are important psychological differences in the way people respond to the risk and the ambiguity that characterizes decision-making contexts in the field (Einhorn and Hogarth, 1986). This thesis compares measurements of risk and ambiguity preferences with other experimental decisions, finding differences between the contexts of risk and ambiguity. These contextual differences are particularly important for understanding the interaction of traders in markets if ambiguity-aversion is explained by the use of rules of thumb (Camerer, 1999), traders are more likely to apply rules of thumb under ambiguity (Heiner, 1983), or even imitate others under these conditions (Choi, 1993). Finally, this thesis presents comparisons of measured risk and ambiguity preferences with the direction of trade in double auction markets finding that ambiguity preferences are strongly related to the direction of trade under conditions of ambiguity. Combined with the observation of more predictable patterns of prices under ambiguity, this finding supports Camerer{u2019}s (1999) proposition that ambiguity preferences might be more important than risk preferences for understanding market behaviour. In contrast, less predictable prices observed under risk might reflect the behaviour of better informed traders and the potential for faster rates of convergence to equilibrium. Rather than a hindrance to the introduction of new markets, this form of price volatility might reflect a better functioning market. This thesis emphasizes the importance of the difference between risk and ambiguity for understanding market behaviour.
Affective Decision Making Under Uncertainty
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Author : Donald J. Brown
language : en
Publisher: Springer Nature
Release Date : 2020-12-18
Affective Decision Making Under Uncertainty written by Donald J. Brown and has been published by Springer Nature this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020-12-18 with Business & Economics categories.
This book is an exploration of the ubiquity of ambiguity in decision-making under uncertainty. It presents various essays on behavioral economics and behavioral finance that draw on the theory of Black Swans (Taleb 2010), which argues for a distinction between unprecedented events in our past and unpredictable events in our future. The defining property of Black Swan random events is that they are unpredictable, i.e., highly unlikely random events. In this text, Mandelbrot’s (1972) operational definition of risky random unpredictable events is extended to Black Swan assets – assets for which the cumulative probability distribution or conditional probability distribution of random future asset returns is a power distribution. Ambiguous assets are assets for which the uncertainties of future returns are not risks. Consequently, there are two disjoint classes of Black Swan assets: Risky Black Swan assets and Ambiguous Black Swan assets, a new class of ambiguous assets with unpredictable random future outcomes. The text is divided into two parts, the first of which focuses on affective moods, introduces affective utility functions and discusses the ambiguity of Black Swans. The second part, which shifts the spotlight to affective equilibrium in asset markets, features chapters on affective portfolio analysis and Walrasian and Gorman Polar Form Equilibrium Inequalities. In order to gain the most from the book, readers should have completed the standard introductory graduate courses on microeconomics, behavioral finance, and convex optimization. The book is intended for advanced undergraduates, graduate students and post docs specializing in economic theory, experimental economics, finance, mathematics, computer science or data analysis.
Essays On Experimental Analysis Of Decision Making Under Risk And Ambiguity
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Author : Julen Carlos Ortiz De Zarate Pina
language : en
Publisher:
Release Date : 2021
Essays On Experimental Analysis Of Decision Making Under Risk And Ambiguity written by Julen Carlos Ortiz De Zarate Pina and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with categories.
Individual Decision Making Under Ambiguity And Over Time
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Author : Yuanyuan Liu
language : en
Publisher:
Release Date : 2015
Individual Decision Making Under Ambiguity And Over Time written by Yuanyuan Liu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
This dissertation addresses the issue of how to make decisions involving both time delay and ambiguous information. This dissertation is arranged into three chapters. Chapter 1 reviews a set of studies on the influence of ambiguity and time delay on individual decision making and raises two relevant research questions: (1) Are decision makers' ambiguity preferences different for prospects resolved in the present and the future?; and (2) Do decision makers' time preferences differ under ambiguous and unambiguous payoffs? Chapter 2 and 3 are two independent essays, each addressing one of the above questions. The first essay examines ambiguity preferences under present and delayed resolutions across low and high probabilities. Results of three studies show an interaction effect between resolution time and probability level. Under the immediate resolution, we find that individuals exhibit ambiguity aversion at high probabilities and weak ambiguity seeking or indifference at low probabilities, consistent with prior literature. However, delayed resolution regresses aversion and seeking behaviors to neutrality. Drawing on the construal level theory and the dual-process theory, we attribute this interaction effect to the difference in processing styles for present and future prospects. The second essay demonstrates the impact of ambiguous future payoffs on intertemporal preferences. Six studies show that, despite the fact that ambiguous and delayed payoffs are generally disliked separately, together they produce a positive effect. That is, ambiguous future payoffs are more likely to be preferred than precise payoffs (with equal expected values) in intertemporal decision-making. We propose the overshadowing hypothesis to explain this effect and rule out three other possibilities. Finally, we establish boundary conditions by systematically examining whether the effect persists at various ambiguity levels and time points.
Risk And Decision Making
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Author :
language : en
Publisher: National Academies Press
Release Date : 1982-01-01
Risk And Decision Making written by and has been published by National Academies Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 1982-01-01 with Decision-making categories.
Comparing Decisions Under Compound Risk And Ambiguity The Importance Of Cognitive Skills
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Author : Sasha Prokosheva
language : en
Publisher:
Release Date : 2014
Comparing Decisions Under Compound Risk And Ambiguity The Importance Of Cognitive Skills written by Sasha Prokosheva and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
Prospect Theory
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Author : Peter P. Wakker
language : en
Publisher: Cambridge University Press
Release Date : 2010-07-22
Prospect Theory written by Peter P. Wakker and has been published by Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-07-22 with Business & Economics categories.
Prospect Theory: For Risk and Ambiguity, provides a comprehensive and accessible textbook treatment of the way decisions are made both when we have the statistical probabilities associated with uncertain future events (risk) and when we lack them (ambiguity). The book presents models, primarily prospect theory, that are both tractable and psychologically realistic. A method of presentation is chosen that makes the empirical meaning of each theoretical model completely transparent. Prospect theory has many applications in a wide variety of disciplines. The material in the book has been carefully organized to allow readers to select pathways through the book relevant to their own interests. With numerous exercises and worked examples, the book is ideally suited to the needs of students taking courses in decision theory in economics, mathematics, finance, psychology, management science, health, computer science, Bayesian statistics, and engineering.
Decision Making Under Risk And Ambiguity
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Author : Benjamin Albrecht
language : en
Publisher:
Release Date : 2015
Decision Making Under Risk And Ambiguity written by Benjamin Albrecht and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.