Choices, Values, and Frames
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An Attention-Based Theory of Mental Accounting∗
An Attention-Based Theory of Mental Accounting∗ Botond K}oszegiy and Filip Matˇejkaz October 7, 2019 Abstract We analyze how an agent with costly attention optimally attends and responds to taste, consumption-opportunity, and price shocks in basic multi-product consumption problems, ex- plaining several types of mental accounting and making other predictions. If the problem is to choose the consumption levels of many goods with different degrees of substitutability, the agent may create budgets for the more substitutable products (e.g., entertainment). In some situations, it is optimal to specify budgets in terms of consumption quantities, but when most products have an abundance of substitutes, specifying budgets in terms of nominal spending tends to be optimal. If the goods are complements, in contrast, the agent | consistent with naive diversification | may choose a fixed, unconsidered mix of products. And if the agent's problem is to choose one of multiple products to fulfill a given consumption need (e.g., for gasoline or a bed), it is often optimal for her to allocate a fixed sum for the need. Keywords: mental accounting, naive diversification, rational inattention. JEL Codes: D01, D11, D14 ∗ We thank Yuriy Gorodnichenko, Paul Heidhues, Rupal Kamdar, Marc Kaufmann, David Laibson, Andrei Shleifer, Philipp Strack, and seminar participants at BI Norwegian Business School, Carnegie Mellon University, Cornell University, D-TEA, Harvard University, LSE, Oxford University, Princeton University, Queen Mary University, UC Berkeley, UC Davis, University of Copenhagen, SITE, Washington University, and Wharton for excellent comments. This project has received funding from the European Research Council (grant agreement numbers 678081 and 788918) and the UNCE project (UNCE/HUM/035). -
Mental Accounting and the Equity Premium Puzzle
Working Paper Series _______________________________________________________________________________________________________________________ National Centre of Competence in Research Financial Valuation and Risk Management Working Paper No. 243 Mental Accounting and The Equity Premium Puzzle Thorsten Hens Peter Wöhrmann First version: July 2005 Current version: June 2006 This research has been carried out within the NCCR FINRISK project on “Evolution and Foundations of Financial Markets” ___________________________________________________________________________________________________________ Mental Accounting and the Equity Premium Puzzle¤ Thorsten Hens a;b Peter WÄohrmann a June 28, 2006 Abstract We argue that the equity premium puzzle stems from a mismatch of applying mental accounting to experiments on risk aversion but not to the standard consumption based asset pricing model. If, as we suggest, one applies mental accounting consistently in both areas the degrees of risk aversions obtained coincide and the equity premium puzzle is gone. JEL-Classi¯cation: G 11, G 12, D 81. Keywords: Equity Premium Puzzle, Mental Accounting. ¤We like to thank Ernst Fehr and Marc-Oliver Rieger for valuable discussions. Financial support by the University Research Priority Programme "Finance and Financial Markets" of the University of Zurich and the national center of competence in research \Financial Valuation and Risk Management" is gratefully acknowledged. The national centers in research are managed by the Swiss National Science Foundation on behalf of the federal authorities. aSwiss Banking Institute, University of ZÄurich, Plattenstrasse 32, CH-8032 ZÄurich, Switzerland. bNorwegian School of Economics and Business Administration, Helleveien 30, N-5045, Bergen, Norway. Email [email protected], [email protected] 1 1 Introduction A large equity premium is one of the more robust ¯ndings in ¯nancial eco- nomics. -
Conference Proceedings !"#$
International Joint Cross-Border PhD Programme in International Economic Relations and Management Academic Scientific Committee for Research and Doctoral Studies University Juraj Dobrila of Pula, Croatia; University of Economics in Bratislava, Faculty of International Relations, Slovak Republic; University of Sopron, Alexandre Lamfalussy Faculty of Economics , Sopron, Hungary; University North, Varaždin, Croatia; University of Mostar; Czech University of Life Sciences, Prague; University of Applied Sciences Burgenland (UAS), Eisenstadt, Austria CONFERENCE PROCEEDINGS !"#$ 4th INTERNATIONAL SCIENTIFIC CONFERENCE FOR DOCTORAL STUDENTS AND EARLY-STAGE RESEARCHERS Eisenstadt, Austria © 2018 University of Applied Science Burgenland All rights reserved. No part of this book may be reproduced in any form by any electronical or mechanical means (including photocopying, recording or information storage and retrieval) without a written permission from the publisher. The authors are responsible for all of the content that has been published in the book. Publisher: University of Applied Science Burgenland FACHHOCHSCHULE BURGENLAND GmbH EISENSTADT, Campus 1 A-7000 Eisenstadt Tel.: +43 5 7705 Editor: Prof.dr.sc. Marinko Škare Conference Proceedings of the Third International Scientific Conference for Doctoral Students and Young Researchers Editorial board: Prof. Dr. Dr. h.c. Csaba Székely (Hungary) Dr.h.c. Prof. Ing. Ludmila Lipková, CSc. (Slovakia) Dr. Mgr. Boris Mattoš,PhD (Slovakia) Prof. Dr. Sc. Valter Boljuncic (Croatia) Prof.Dr.Sc.Marinko Škare -
Essays on Mental Accounting and Consumers' Decision Making Ali Besharat University of South Florida, [email protected]
University of South Florida Scholar Commons Graduate Theses and Dissertations Graduate School January 2012 Essays on Mental Accounting and Consumers' Decision Making Ali Besharat University of South Florida, [email protected] Follow this and additional works at: http://scholarcommons.usf.edu/etd Part of the American Studies Commons, Cognitive Psychology Commons, and the Marketing Commons Scholar Commons Citation Besharat, Ali, "Essays on Mental Accounting and Consumers' Decision Making" (2012). Graduate Theses and Dissertations. http://scholarcommons.usf.edu/etd/3977 This Dissertation is brought to you for free and open access by the Graduate School at Scholar Commons. It has been accepted for inclusion in Graduate Theses and Dissertations by an authorized administrator of Scholar Commons. For more information, please contact [email protected]. Essays on Mental Accounting and Consumers’ Decision Making by Ali Besharat A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy Department of Marketing College of Business University of South Florida Major Professor: Sajeev Varki, Ph.D. Anand Kumar, Ph.D. Barbara Lafferty, Ph.D. Dan Bradley, Ph.D. Date of Approval: May 29, 2012 Keywords: Debt Management, Credit Card Debt, Prepayment, Time, Effort Copyright © 2012, Ali Besharat Dedication I have truly lived a blessed life filled with many loving and supportive people. This dissertation is dedicated to the lovely people who shared with me the effort and sacrifices required to complete it. First, I dedicate this work to my immediate family: my parents, Mehdi and Shokouh, and my sister, Nasim, for their endless love, support, sacrifice, and patience throughout my life. -
Daniel Kahneman Curriculum Vitae August 2016
Daniel Kahneman Curriculum Vitae August 2016 Born: 1934, Tel Aviv, Israel Citizenship: US, Israel Education Ph.D. University of California, Berkeley, 1961 (Psychology) B.A. The Hebrew University, Jerusalem, 1954, (Psychology and Mathematics) Professional Positions Held 2007- Professor of Psychology and Public Affairs, Emeritus, Woodrow Wilson School, Princeton University 2007- Eugene Higgins Professor of Psychology, Emeritus, Princeton University 2000- Fellow, Center for Rationality, Hebrew University, Jerusalem 1993-2007 Eugene Higgins Professor of Psychology, Princeton University 1993-2007 Professor of Psychology and Public Affairs, Woodrow Wilson School, Princeton University 1991-1992 Visiting Scholar, Russell Sage Foundation 1986-1994 Professor of Psychology, University of California, Berkeley 1984-1986 Associate Fellow, Canadian Institute for Advanced Research 1978-1986 Professor of Psychology, The University of British Columbia 1977-1978 Fellow, Center for Advanced Studies in the Behavioral Sciences 1968-1969 Visiting Scientist (summers), Applied Psychological Research Unit, Cambridge, England 1966-1967 Fellow, Center for Cognitive Studies; Lecturer in Psychology, Harvard University 1965-1966 Visiting Scientist, Department of Psychology, University of Michigan 1961-1978 Lecturer to Professor, The Hebrew University, Jerusalem, Israel LINKS TO RECENT LECTURES Video and Audio Links “Interview with Leif Nelson,” The Society for Judgment and Decision Making, November 2015. “Thinking That We Know”, Sackler Colloquium to the National Academy -
Measuring the Impact of Mental Accounting on Financial and Investment Decisions Among Investors
Arab Journal of Administration, Vol. 44, No. 1, March 2024 Measuring the Impact of Mental Accounting on Financial and Investment Decisions among Investors Dr. Abd El Rahman Mohammed Rashwan Dr. Khalil Ibrahim Shaqfa Assistant Professor Part-time Assistant Professor Dept. of Administrative & Financial Sciences Umma University University College of Science and Technology For Open Education Gaza – Palestine Gaza – Palestine [email protected] [email protected] Abstract The study aims to identify the impact of mental accounting on financial and investment decision-making among Palestinian investors. The study used the descriptive analytical method, and the study was based on a questionnaire distributed to the sample of the study consisting of (136) Palestinian investors, and the results of the study found that mental accounting contributes to enhancing the risk assessment of financial and in- vestment decisions of Palestinian investors, thus avoiding the risks associated with the decisions taken, and recommended the need to conduct simulation models to raise the financial culture of investors in light of the uses of mental accounting in financial and investment decisions in order to increase the skills and potential of investors in managing the information available to them in the portfolio management Finance. Keywords: Mental Accounting, Decision-making, Investors. Introduction Mental or mental accounting and others call it psychological accounting, drafted by Richard Thaler, pro- fessor of behavioral economics at the University of Chicago’s Booth School of Business, who won the Nobel Prize in Economics in 2017, and whose ideas inspired many scientists in various disciplines, and contributed to changing the way we think about human behavior, which pointed to the different value of money in peo- ple based on subjective criteria that lead them to negative results and exposure to irrational decisions in their spending and investment behavior. -
511795 Chicago LR 73#3.Ps
Judges as Rulemakers Emily Sherwin† In Do Cases Make Bad Law?, Frederick Schauer raises some se- rious questions about the process of judicial lawmaking.1 Schauer takes issue with the widely held assumption that judge-made law benefits from the court’s focus on a particular real-world dispute.2 Writing with characteristic eloquence, Schauer argues that the need to resolve a concrete dispute does not enhance the ability of judges to craft sound rules, but instead generates cognitive biases that distort judicial development of legal rules. Schauer’s observations about the risks of rulemaking in an adju- dicatory setting are very persuasive. Yet his overall assessment of the common law process may be too severe. In this Essay, I shall suggest that common law decisionmaking, at least in its more traditional forms, has features that can counteract the biases that worry Schauer and provide at least some protection from the errors his theory pre- dicts. Specifically, the common judicial practices of consulting prece- dent decisions and seeking analogies in the facts of prior cases broaden the perspective of judges and allow them to better assess the consequences of proposed rules. This is so even if following precedent and reasoning by analogy are not otherwise defensible. I. SCHAUER’S CASE AGAINST COMMON LAW RULEMAKING Schauer begins with the premise that judges do in fact make law.3 Prior to the twentieth century, jurists often characterized their task as discovery of rules embedded in legal tradition and common practice.4 †Professor of Law, Cornell Law School. 1 See generally Frederick Schauer, Do Cases Make Bad Law?, 73 U Chi L Rev 883 (2006). -
Efficient Algorithms for Computing Approximate Equilibria in Bimatrix
Efficient Algorithms for Computing Approximate Equilibria in Bimatrix, Polymatrix and Lipschitz Games Thesis submitted in accordance with the requirements of the University of Liverpool for the degree of Doctor in Philosophy by Argyrios Deligkas July 2016 Abstract In this thesis, we study the problem of computing approximate equilibria in sev- eral classes of games. In particular, we study approximate Nash equilibria and approximate well-supported Nash equilibria in polymatrix and bimatrix games and approximate equilibria in Lipschitz games, penalty games and biased games. We construct algorithms for computing approximate equilibria that beat the cur- rent best algorithms for these problems. In Chapter 3, we present a distributed method to compute approximate Nash equilibria in bimatrix games. In contrast to previous approaches that analyze the two payoff matrices at the same time (for example, by solving a single LP that combines the two players' payoffs), our algorithm first solves two independent LPs, each of which is derived from one of the two payoff matrices, and then computes an approximate Nash equilibrium using only limited communication between the players. In Chapter 4, we present an algorithm that, for every δ in the range 0 < δ ≤ 0:5, finds a (0:5+δ)-Nash equilibrium of a polymatrix game in time polynomial in 1 the input size and δ . Note that our approximation guarantee does not depend on the number of players, a property that was not previously known to be achievable for polymatrix games, and still cannot be achieved for general strategic-form games. In Chapter 5, we present an approximation-preserving reduction from the problem of computing an approximate Bayesian Nash equilibrium (-BNE) for a two-player Bayesian game to the problem of computing an -NE of a polymatrix game and thus show that the algorithm of Chapter 4 can be applied to two-player Bayesian games. -
Direct Tests of Cumulative Prospect Theory⇤
Direct Tests of Cumulative Prospect Theory⇤ B. Douglas Bernheim † Charles Sprenger‡ Stanford University and NBER UC San Diego First Draft: December 1, 2014 This Version: November 8, 2016 Abstract Cumulative Prospect Theory (CPT), the leading behavioral account of decision making under uncertainty, assumes that the probability weight applied to a given outcome depends on its ranking. This assumption is needed to avoid the violations of dominance implied by Prospect Theory (PT). We devise a simple test involving three-outcome lotteries, based on the implication that compensating adjustments to the payo↵s in two states should depend on their rankings compared with payo↵s in a third state. In an experiment, we are unable to find any support for the assumption of rank dependence. We separately elicit probability weighting functions for the same subjects through conventional techniques involving binary lotteries. These functions imply that changes in payo↵rank should change the compensating adjustments in our three-outcome lotteries by 20-40%, yet we can rule out any change larger than 7% at standard confidence levels. Additional tests nevertheless indicate that the dominance patterns predicted by PT do not arise. We reconcile these findings by positing a form of complexity aversion that generalizes the well-known certainty e↵ect. JEL classification: D81, D90 Keywords:ProspectTheory,CumulativeProspectTheory,RankDependence,CertaintyEquiv- alents. ⇤We are grateful to Ted O’Donoghue, Colin Camerer, Nick Barberis, Kota Saito, and seminar participants at Cornell, Caltech, and Gary’s Conference (UC Santa Barbara) for helpful and thoughtful discussions. Fulya Ersoy, Vincent Leah-Martin, Seung-Keun Martinez, and Alex Kellogg all provided valuable research assistance. -
Relation Exchange As the Model of Bounded Rationality
Relation exchange as the model of bounded rationality June 16, 2017 Sung Sup Rhee Emeritus professor at Soongsil University [email protected] This paper is a preliminary version which is prepared for the presentation at 2017 KEA- APEA conference, July 7-8, 2017. Title: Relation exchange as the model of bounded rationality Author: Sung Sup Rhee/Emeritus professor at Soongsil University/[email protected] Abstracts: Kahneman (2003) presented the scheme of human cognitive system, which presents the steps of sensory order. Human cognition begins with perceptions, from which intuition comes off as fast, parallel, automatic, effortless and emotional system. Reasoning is slow, serial, controlled, effortful and rule-governed system of cognition. The architecture of rational agent model is built on the unrealistic assumption of single cognitive system which has the logical ability of a flawless system of reasoning. However, upon encountering the need to make decision, individuals are likely to act intuitively because intuition is more accessible than reason, which is at odds with the premise of rational agent model and prompts the launching of empiricism approach (Hume 1739). The process of sympathy and consent may be considered as the conduit between different cognitive systems of different individuals. Then, the relational interactions among individuals, i.e. relation exchange should be conceived as the outcome of sympathy-consent process (Rhee 2012b, 2016b). The fundamentality of relation exchange in comparison with value exchange vindicates the legitimacy of relation exchange as the model of bounded rationality. Keywords Cognitive system, accessibility, sympathy-consent process, relation exchange, open/indeterminate system, bounded rationality JEL code: D01, D03 I. -
Managerial Applications of Framing Effects and Mental Accounting in Network Participation
Advances in Production Engineering & Management 6 (2011) 1, 57-69 ISSN 1854-6250 Scientific paper MANAGERIAL APPLICATIONS OF FRAMING EFFECTS AND MENTAL ACCOUNTING IN NETWORK PARTICIPATION Amir Emami*; Fatemeh Saghafi**; Behrouz Zarei***; Mahsa Ebrahimzadeh**** & Ali Davari***** *Researcher, Faculty of Entrepreneurship, University of Tehran, Tehran, Iran **PhD, Faculty Member of Iran Telecommunication Research Center, Tehran, Iran ***Assistant Professor, PhD, Faculty of Entrepreneurship, University of Tehran, Tehran, Iran ****Faculty of Entrepreneurship, University of Tehran, Tehran, Iran *****PhD, Allameh Tabatabaei University, Tehran, Iran E-mail: [email protected], [email protected] Abstract: Metropolis such as Tehran might be treated as an example of the cities on their ways to be modernized being faced with emerging problems and issues. With respect to the efficiency of the civil sophisticated experts' ideas for resolving the civic difficulties, an intelligent database named “Idea Bank” has been implemented in Tehran municipality since 2009. The aim of this paper is showing some solutions for enhancing the efficiency and effectiveness of the idea bank system based on framing effects (FE). Based on extensive review of FE, broad ranges of general case of FE are identified. Then, through field studies and using questionnaire tools, the degree of the applicability of each particular FE lows is determined. The research procedure finally led to the identification of applicable FE in enhancing the performance of idea bank network. The results show the application of sunk cost, bundle/unbundle framing of outcomes and Penny-a-day strategy can effect on generating ideas in the idea bank. Also Pseudo certainty effect could reduce idea bank's awards expenses even the amount of reduction illustrated quantitatively. -
Judgment Under Uncertainty: Heuristics and Biases Author(S): Amos Tversky and Daniel Kahneman Source: Science, New Series, Vol
Judgment under Uncertainty: Heuristics and Biases Author(s): Amos Tversky and Daniel Kahneman Source: Science, New Series, Vol. 185, No. 4157, (Sep. 27, 1974), pp. 1124-1131 Published by: American Association for the Advancement of Science Stable URL: http://www.jstor.org/stable/1738360 Accessed: 15/04/2008 14:50 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=aaas. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit organization founded in 1995 to build trusted digital archives for scholarship. We enable the scholarly community to preserve their work and the materials they rely upon, and to build a common research platform that promotes the discovery and use of these resources. For more information about JSTOR, please contact [email protected]. http://www.jstor.org occupation from a list of possibilities (for example, farmer, salesman, airline pilot, librarian, or physician)? How do people order these occupations from most to least likely? In the representa- Judgment under Uncertainty: tiveness heuristic, the probability that Steve is a librarian, for example, is Heuristics and Biases assessed by the degree to which he is representative of, or similar to, the stereotype of a librarian.