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Koszegi, Botond; Rabin, Matthew - In: American Economic Review 99 (2009) 3, pp. 909-36

We develop a rational dynamic model in which people are loss averse over changes in beliefs about present and future consumption. Because changes in wealth are news about future consumption, preferences over money are reference-dependent. If news resonates more when about imminent consumption...

Persistent link: https://www.econbiz.de/10005014649

Who Is (More) Rational?

Choi, Syngjoo; Kariv, Shachar; Wieland M?ller; … - In: American Economic Review 104 (2014) 6, pp. 1518-50

Revealed preference theory offers a criterion for decision-making quality: if decisions are high quality then there exists a utility function the choices maximize. We conduct a large-scale experiment to test for consistency with utility maximization. Consistency scores vary markedly within and...

Persistent link: https://www.econbiz.de/10010777186

The Evolution of Time Preference with Aggregate Uncertainty

Robson, Arthur J.; Samuelson, Larry - In: American Economic Review 99 (2009) 5, pp. 1925-53

We examine the evolutionary foundations of intertemporal preferences. When all the risk affecting survival and reproduction is idiosyncratic, evolution selects for agents who maximize the discounted sum of expected utility, discounting at the sum of the population growth rate and the mortality...

Persistent link: https://www.econbiz.de/10008596307

Risk Preferences Are Not Time Preferences

Andreoni, James; Sprenger, Charles - In: American Economic Review 102 (2012) 7, pp. 3357-76

Risk and time are intertwined. The present is known while the future is inherently risky. This is problematic when studying time preferences since uncontrolled risk can generate apparently present-biased behavior. We systematically manipulate risk in an intertemporal choice experiment....

Persistent link: https://www.econbiz.de/10010815566

Behavioral Biases and Firm Behavior: Evidence from Kenyan Retail Shops

Kremer, Michael; Lee, Jean; Robinson, Jonathan; … - In: American Economic Review 103 (2013) 3, pp. 362-68

Many subjects in lab experiments exhibit small-stakes risk aversion, consistent with loss aversion. Those with greater math skills are less likely to show small-stakes risk aversion. We argue that departures from expected utility maximization may help explain why many firms in developing...

Persistent link: https://www.econbiz.de/10010659325

Evolution of Time Preferences and Attitudes toward Risk

Netzer, Nick - In: American Economic Review 99 (2009) 3, pp. 937-55

This paper explores a general model of the evolution and adaption of hedonic utility. It is shown that optimal utility will be increasing strongly in regions where choices have to be made often and decision mistakes have a severe impact on fitness. Several applications are suggested. In the...

Persistent link: https://www.econbiz.de/10005014633

Polarization and Ambiguity

Baliga, Sandeep; Hanany, Eran; Klibanoff, Peter - In: American Economic Review 103 (2013) 7, pp. 3071-83

impossible under Bayesian updating or after observing extreme signals. However, we also show that polarization can arise after …We offer a theory of polarization as an optimal response to ambiguity. Suppose individual A's beliefs first … intermediate signals as ambiguity averse individuals implement their optimal prediction strategies. We explore when this …

Persistent link: https://www.econbiz.de/10010815522

Entropy and the Value of Information for Investors

Cabrales, Antonio; Gossner, Olivier; Serrano, Roberto - In: American Economic Review 103 (2013) 1, pp. 360-77

Consider an investor who fears ruin when facing investments that satisfy no-arbitrage. Before investing he can purchase information about the state of nature as an information structure. Given his prior, information structure Î± investment dominates information structure Î² if, whenever he...

Persistent link: https://www.econbiz.de/10010815577

Surplus Maximization and Optimality

Schlee, Edward E. - In: American Economic Review 103 (2013) 6, pp. 2585-2611

Expected consumer's surplus rarely represents preferences over price lotteries. Still, I give sufficient conditions for policies which maximize aggregate expected surplus to be interim Pareto Optimal. Besides two standard partial equilibrium conditions, I assume that feasible prices satisfy a...

Persistent link: https://www.econbiz.de/10010815591

The Psychology of Tail Events: Progress and Challenges

Barberis, Nicholas - In: American Economic Review 103 (2013) 3, pp. 611-16

Over the past decade there has been a surge of interest in "tail events," or rare, high-impact events. In this article, I start by summarizing some recent progress in our understanding of the psychology of tail events. I suggest that much of this progress has centered on the concept of...

Persistent link: https://www.econbiz.de/10010659390

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