When an agent chooses between prospects, noise in information processing generates an effect akin to the winner’s curse. Statistically unbiased perception systematically overvalues the chosen action because it fails to account for the possibility that noise is responsible for making the...

The paper reports the result of an experimental game on asset integration and risk taking. We find evidence that winnings in earlier rounds affect risk taking in subsequent rounds, but no evidence that real life wealth outside the experiment affects risk taking. We find some evidence of...

There is widespread evidence that monetary policy exerts asymmetric effects on output over contractions and expansions in economic activity, while price responses display no sizeable asymmetry. To rationalize these facts we develop a dynamic general equilibrium model where households’ utility...

Financial well-being is distinct from income. Some people with high incomes suffer low financial well-being, as their incomes fall short of their aspirations. Such people feel propelled to reach their aspirations by taking risk and willing to bear losses. Conversely, some people with low incomes...

Data from downtown Boston in the 1990s show that loss aversion determines seller behaviour in the housing market. Condominium owners subject to nominal losses: (1) set higher asking prices of 25-35% of the difference between the property’s expected selling price and their original purchase...

We examine a simple measure of portfolio performance based on prospect theory, which captures not only risk and return but also reflects differential aversion to upside and downside risk. The measure we propose is a ratio of gains to losses, with the gains and losses weighted (if desired) to...

This paper tests for reference dependence, using data from Impressionist and Contemporary Art auctions. We distinguish reference dependence based on ‘rule of thumb’ learning from reference dependence based on ‘rational’ learning. Furthermore, we distinguish pure reference dependence from...

This paper studies behavior in experiments with a linear voluntary contributions mechanism for public goods conducted in Japan, the Netherlands, Spain and the USA. The same experimental design was used in the four countries. Our 'contribution function' design allows us to obtain a view of...

We discuss how technologies of peer punishment might bias the results that are observed in experiments. A crucial parameter is the “fine-to-fee” ratio, which describes by how much the punished subjects income is reduced relatively to the fee the punishing subject has to pay to inflict...