How Basic Are Behavioral Biases? Evidence from Capuchin Monkey Trading Behavior

Chen, M. Keith; Lakshminarayanan, Venkat; Santos, Laurie R.

doi:10.1086/503550

Cited by 377 publications

(313 citation statements)

References 28 publications

Supporting

Mentioning

292

Contrasting

Unclassified

Order By: Relevance

“…The , − , term is added as the correction for the change in the risk-free rate or inflation. We underline that evidence for the aforementioned patterns in the dynamics of risk-seeking, reference-dependence and framing have been bolstered by numerous studies from alternative field of science as well such as neuroeconomics (Kuhnen and Knutson, 2005) and non-human physiology (Chen et al, 2006;Lakshminarayanan et al, 2011). These findings provide support for our theoretical setting and increase the relevance and robustness of the results.…”

Section: Dynamics Of the Required Returnsupporting

confidence: 72%

Microfoundations of Heteroscedasticity: A Loss-Aversion-Based Explanation of Asymmetric GARCH Models

Ormos

Timotity

2016

SSRN Journal

View full text Add to dashboard Cite

This paper provides a theoretical explanation for the heteroscedasticity of asset returns. In line with existing empirical results, our model yields an asymmetric relationship between stock return and volatility. Based on the simple assumptions that investors behave according to Prospect Theory and are subject to mental accounting in a dynamic setting, we analytically derive the unit-root versions of two of the best fitting heteroscedasticity models (EGARCH and TGARCH). The model is supported by our empirical results from two different sides: first, analysis of individual trading data shows that investors indeed become risk-seeking right after losses and more risk-averse subsequent to gains; second, the parameter estimation of our volatility model yields the predicted negative relationship between abnormal returns and subsequent volatility.Keywords: Asymmetric volatility; Risk seeking; Prospect theory; TGARCH; EGARCH; Volatility dynamics; Market microstructure; Heuristic-driven trader JEL classification: C58; C93; G02; G11; G12 Acknowledgements: We gratefully acknowledge the help of Terry Odean, who provided us the individual trading dataset. We also would like to express our gratitude for the thoughtful remarks of Adam Zawadowski, which have significantly contributed to our paper. We thank Zsolt Bihary and Niklas Wagner for their comments and suggestions of at the 6th Annual Abstract This paper provides a theoretical explanation for the heteroscedasticity of asset returns. In line with existing empirical results, our model yields an asymmetric relationship between stock return and volatility. Based on the simple assumptions that investors behave according to Prospect Theory and are subject to mental accounting in a dynamic setting, we analytically derive the unit-root versions of two of the best fitting heteroscedasticity models (EGARCH and TGARCH). The model is supported by our empirical results from two different sides: first, analysis of individual trading data shows that investors indeed become risk-seeking right after losses and more risk-averse subsequent to gains; second, the parameter estimation of our volatility model yields the predicted negative relationship between abnormal returns and subsequent volatility.

show abstract

Section: Dynamics Of the Required Returnsupporting

confidence: 72%

Microfoundations of Heteroscedasticity: A Loss-Aversion-Based Explanation of Asymmetric GARCH Models

Ormos

Timotity

2016

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…Capuchin monkeys also exhibit loss aversion, showing a preference for outcomes framed as a reward over those framed as a loss despite the actual distribution of outcomes being equal (Chen, Lakshminarayanan, & Santos, 2006). This is another 'irrational' behavior which is often linked with the endowment effect.…”

Section: The Endowment Effect the Issue Of Property Can Be Addressedmentioning

confidence: 99%

Property in nonhuman primates

Brosnan

2011

New Directions for Child and Adolescent Development

View full text Add to dashboard Cite

“…For example, capuchin monkeys (Cebus apella) prefer to trade a token with an experimenter who offered a smaller amount of food but sometimes augmented it (a gain) versus one who initially offered more but sometimes reduced it (a loss)-despite receiving equal pay-offs regardless [5]. Moreover, framing can influence non-human risk preferences: both capuchins and European starlings (Sturnus vulgaris) are more risk-seeking when attempting to avoid certain losses than when attempting to acquire gains [7,8].…”

Section: Introductionmentioning

confidence: 99%

Bonobos and chimpanzees exhibit human-like framing effects

2015

View full text Add to dashboard Cite

Humans exhibit framing effects when making choices, appraising decisions involving losses differently from those involving gains. To directly test for the evolutionary origin of this bias, we examined decision-making in humans' closest living relatives: bonobos (Pan paniscus) and chimpanzees (Pan troglodytes). We presented the largest sample of non-humans to date (n ¼ 40) with a simple task requiring minimal experience. Apes made choices between a 'framed' option that provided preferred food, and an alternative option that provided a constant amount of intermediately preferred food. In the gain condition, apes experienced a positive 'gain' event in which the framed option was initially presented as one piece of food but sometimes was augmented to two. In the loss condition, apes experienced a negative 'loss' event in which they initially saw two pieces but sometimes received only one. Both conditions provided equal pay-offs, but apes chose the framed option more often in the positive 'gain' frame. Moreover, male apes were more susceptible to framing than were females. These results suggest that some human economic biases are shared through common descent with other apes and highlight the importance of comparative work in understanding the origins of individual differences in human choice.

show abstract

How Basic Are Behavioral Biases? Evidence from Capuchin Monkey Trading Behavior

Cited by 377 publications

References 28 publications

Microfoundations of Heteroscedasticity: A Loss-Aversion-Based Explanation of Asymmetric GARCH Models

Microfoundations of Heteroscedasticity: A Loss-Aversion-Based Explanation of Asymmetric GARCH Models

Property in nonhuman primates

Bonobos and chimpanzees exhibit human-like framing effects

Contact Info

Product

Resources

About