Reference-dependent preferences have been well accepted in decision sciences, experimental economics, behavioral finance, and marketing. However, we still know very little about how decision makers form and update their reference points given a sequence of information. Our paper provides some...

This study compares time preference in the cases of certainty and risk. We analyze both matching and choice behavior. We find that violations of the stationarity axiom are restricted to matching behavior, both for certainty and risk. We also compare the discounting of certain and risky outcomes...

This paper reports the results of an experimental parameter-free elicitation and decomposition of decision weights under uncertainty. Assuming cumulative prospect theory, utility functions were elicited for gains and losses at an individual level using the tradeoff method. Subsequently, decision...

If individuals have to evaluate a sequence of lotteries, their judgment is influenced by the presentation mode. Experimental studies have found significantly higher acceptance rates for a sequence of lotteries if the overall distribution was displayed instead of the set of lotteries itself....

Decision weights are an important component in recent theories of decision making under uncertainty. To better explain these decision weights, a two-stage approach has been proposed: First, the probability of an event is judged and then this probability is transformed by the probability...

Information on borrower quality is a fundamental issue in debt contracting, corporate and consumer finance, and financial intermediation. We investigate the link between account activity and information production on borrower risk. Based on a unique data set, we find that credit line usage,...

In [21], Sethi et al. introduced a particular new-product adoption model. They determine optimal advertising and pricing policies of an associated deterministic infinite horizon discounted control problem. Their analysis is based on the fact that the corresponding Hamilton–Jacobi–Bellman...

We study the effect of information aggregation on individual investors’ risk-taking behavior in two experiments, each having three different treatments. Subjects in the control group were given hypothetical returns for both the risk-free and the risky asset. Subjects in the account group were...

This paper evaluates numerous diversification strategies as a possible remedy against widespread costly investment mistakes of individual investors. Our results reveal that a very broad range of simple heuristic allocation schemes offers similar diversification gains as well-established or...

In a panel survey of individual investors, we show that investors’ second-order beliefs—their beliefs about the return expectations of other investors—influence investment decisions. Investors who believe others hold more optimistic stock market expectations allocate more of their own...