Stability of risk preference parameter estimates within the Becker-DeGroot-Marschak procedure

James, Duncan

doi:10.1007/s10683-006-9136-y

Cited by 25 publications

(15 citation statements)

References 17 publications

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“…A closer look at the individual data reveals that the variance in individual decisions across lotteries is rather high. This finding is consistent with that of, e.g., James (2007), who estimates risk preference parameters on a time series of data from the Becker-DeGroot-Marschak mechanism, breaking the series into four different regimes. According to his estimates, most subjects switch from risk aversion to risk seeking behavior (or vice versa) in moving from one treatment regime to the other.…”

Section: Risk Attitude Estimatessupporting

confidence: 91%

Voluntary contributions with imperfect information: An experimental study

2008

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This paper uses a two-person linear voluntary contribution mechanism with stochastic marginal benefits from a public good to examine the effect of imperfect information on contributions. Estimates of individual risk preferences are obtained using data from second-price auctions over lotteries. The results show that limited information about the value of the public good significantly lowers average contributions in all periods but the last. Moreover, the results support the interpretation that subjects bid "as if" they were risk averse, and suggest that "as if" risk-averse behavior is negatively correlated with willingness to contribute.

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Section: Risk Attitude Estimatessupporting

confidence: 91%

Voluntary contributions with imperfect information: An experimental study

2008

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“…Our results show that typical non-expected utility patterns as modeled by prospect theory may not provide an appropriate description of choice behavior if time pressure becomes important. We have shown that recently developed models of 9 A similar effect has been found in Issac and James (2000) and James (2007) in comparisons between risk attitude elicitation procedures. In the two studies the subjects who are most risk averse under one elicitation procedure are most risk seeking under the other procedure, suggesting that differences in elicited risk attitudes depend on differences in the susceptibility towards the specific framing of the procedure.…”

Section: Resultssupporting

confidence: 74%

Tempus Fugit: Time Pressure in Risky Decisions

Pahlke

Kocher²,

Trautmann

2011

SSRN Journal

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Abstract:We study the effects of time pressure on risky decisions for pure gain prospects, pure loss prospects, and mixed prospects involving both gains and losses. In an experiment we find that risk aversion for gains is robust under time pressure whereas risk seeking for losses turns into risk aversion under time pressure. For mixed prospects, subjects become more loss averse and more gain seeking under time pressure, depending on the framing of the prospects. The results suggest the importance of aspiration levels under time pressure. We discuss the implications of our findings for decision making situations that involve time pressure.

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“…Our finding of evidence for models with buyer-seller differences in response bias even under conditions of incentive compatibility suggests that lack of understanding of the BDM procedure or implicit, automatic factors, which are less under the decision-maker's control, play at least some role. Although the BDM procedure is a commonly used method for encouraging people to state their actual subjective valuations, there is some evidence that participants do not always fully understand it (e.g., Cason & Plott, 2014;James, 2007;Safra, Segal, & Spivak, 1990). Despite due efforts to clearly explain the procedure to participants, we cannot rule out that in Study 2 some participants did not completely understand it.…”

Section: The Role Of Response Bias In the Endowment Effectmentioning

confidence: 93%

“…The arguably most prominent account of this type is loss aversion (Kahneman et al, 1990), which posits that buyers and sellers differ in their sensitivity to the magnitude of an object's potential consequences (see below for details). Further, there is evidence in valuations of risky options that buyers and sellers differ in probability weighting (e.g., Brenner, Griffin, & Koehler, 2012), and some authors have highlighted the role of strategic misrepresentation (e.g., Heifetz & Segev, 2004;Isoni, Loomes, & Sugden, 2011;Plott & Zeiler, 2005, 2007. Finally, Yechiam and Hochman (2013a) have recently proposed a loss-attention account, according to which buyers and sellers may differ in the amount of attention they invest in a task.…”

Section: Abstract Computational Modeling Endowment Effect Risky Dmentioning

confidence: 99%

Unpacking buyer-seller differences in valuation from experience: A cognitive modeling approach

Pachur

Scheibehenne

2017

Psychon Bull Rev

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People often indicate a higher price for an object when they own it (i.e., as sellers) than when they do not (i.e., as buyers)-a phenomenon known as the endowment effect. We develop a cognitive modeling approach to formalize, disentangle, and compare alternative psychological accounts (e.g., loss aversion, loss attention, strategic misrepresentation) of such buyer-seller differences in pricing decisions of monetary lotteries. To also be able to test possible buyer-seller differences in memory and learning, we study pricing decisions from experience, obtained with the sampling paradigm, where people learn about a lottery's payoff distribution from sequential sampling. We first formalize different accounts as models within three computational frameworks (reinforcement learning, instance-based learning theory, and cumulative prospect theory), and then fit the models to empirical selling and buying prices. In Study 1 (a reanalysis of published data with hypothetical decisions), models assuming buyer-seller differences in response bias (implementing a strategicmisrepresentation account) performed best; models assuming buyer-seller differences in choice sensitivity or memory (implementing a loss-attention account) generally fared worst. In a new experiment involving incentivized decisions (Study 2), models assuming buyer-seller differences in both outcome sensitivity (as proposed by a loss-aversion account) and response bias performed best. In both Study 1 and 2, the models implemented in cumulative prospect theory performed best. Model recovery studies validated our cognitive modeling approach, showing that the models can be distinguished rather well. In summary, our analysis supports a loss-aversion account of the endowment effect, but also reveals a substantial contribution of simple response bias. Keywords Computational modeling . Endowment effect . Risky decision making . Decision from experience . Loss aversionThe minimum price at which people are willing to accept to sell an object they own is often higher than the maximum price they are willing to pay for the same object when they do not own it. This systematic difference between buying and selling prices-which can also occur within the same person when taking different perspectives-is known as the endowment effect (Kahneman, Knetsch, & Thaler, 1990, 1991Thaler, 1980; see also Birnbaum & Stegner, 1979). The endowment effect has attracted considerable attention because it contradicts a central tenet of economic theory: According to the Coase theorem, the value of an object should be independent of its initial ownership (Kahneman et al., 1990).There have been several proposals as to which cognitive mechanisms give rise to the endowment effect, or how buyers' and sellers' cognitive mechanisms might differ generally.1 For instance, there may be asymmetries between buyers and sellers in terms of the order in which they search for positive 1 Note that this issue is orthogonal to the question of which aspects of being endowed-such as ownership, expectations...

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Stability of risk preference parameter estimates within the Becker-DeGroot-Marschak procedure

Cited by 25 publications

References 17 publications

Voluntary contributions with imperfect information: An experimental study

Voluntary contributions with imperfect information: An experimental study

Tempus Fugit: Time Pressure in Risky Decisions

Unpacking buyer-seller differences in valuation from experience: A cognitive modeling approach

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