The effect of fast and slow decisions on risk taking

Abstract

We experimentally compare fast and slow decisions in a series of experiments on financial risk taking in three countries involving over 1700 subjects. To manipulate fast and slow decisions, subjects were randomly allocated to responding within 7 seconds (time pressure) or waiting for at least 7 or 20 seconds (time delay) before responding. To control for different effects of time pressure and time delay on measurement noise, we estimate separate parameters for noise and risk preferences within a random utility framework. We find that time pressure increases risk aversion for gains and risk taking for losses compared to time delay, implying that time pressure increases the reflection effect of Prospect Theory. The results for gains are weaker and less robust than the results for losses. We find no significant difference between time pressure and time delay for loss aversion (tested in only one of the experiments). Time delay also leads to less measurement noise than time pressure and unconstrained decisions, and appears to be an effective way of decreasing noise in experiments.Electronic supplementary materialThe online version of this article (doi:10.1007/s11166-017-9252-4) contains supplementary material, which is available to authorized users.

Measuring Ambiguity Attitudes for All (Natural) Events

“…Somewhat similarly to our results, Young, Goodie, Hall and Wu (2012) found that TP increases insensitivity under risk. The effects of TP on risk aversion are not clear and can go in either direction (Kirchler et al (2017), Kocher, Pahlke, and Trautmann (2013), Young et al (2012)), consistent with our absence of effect on ambiguity aversion. Kocher, Pahlke, and Trautmann (2013) also found increased insensitivity toward outcomes under TP for risk.…”

Additional deliberation reduces pessimism: evidence from the double-response method

“…Our main finding is that, particularly in the case of ambiguity, having time for deliberation reduces the initial pessimism, bringing participants closer to using objective probabilities. As a result, risk aversion is reduced, consistent with the findings reported (for the gain domain) by Kirchler et al (2017).…”

“…In contrast, Kocher et al (2013) found that their participants continued to avoid risks in positive prospects but switched from risk seeking to risk aversion for negative prospects when time limits were introduced. Yet another pattern of findings, arising from an unusually large (n > 1700) international project was recently reported by Kirchler et al (2017). These authors looked at several binary choices between sure amounts and 50/50 gambles, estimating measurement noise separately from risk preference.…”

No need for more time: Intertemporal allocation decisions under time pressure

“…Additionally, they find time pressure moderately increasing risk seeking in decisions from experience. Similar results are obtained by Kirchler et al (2015): In a recent series of studies with more than 1,700 subjects in three countries, they find time pressure to increase risk aversion for gains and risk taking for losses. Hu et al (2015) analyze the interaction of emotion and time pressure on decision-making in a risky environment.…”