We study the information aggregation process in a laboratory financial market where traders have access to costly private and free public imperfect information. The disclosure provokes (i) crowding-out effect on traders’ demand, (ii) overreaction signal, (iii) deterioration price informativeness. show that reduction informativeness is direct consequence of overweighting when aggregated prices. ...

Some people hear voices that others do not, but only some of those people seek treatment. Using a Pavlovian learning task, we induced conditioned hallucinations in four groups of people who differed orthogonally in their voice-hearing and treatment-seeking statuses. People who hear voices were significantly more susceptible to the effect. Using functional neuroimaging and computational modeling...

This paper combines a data-rich environment with machine learning algorithm to provide new estimates of time-varying systematic expectational errors (“belief distortions”) embedded in survey responses. We find sizable distortions even for professional forecasters, all respondent-types overweighting the implicit judgmental component their forecasts relative what can be learned from publicly avai...

There is an increasing pressure to “give wisely.” In a series of experiments, this paper indeed confirms that individuals give less to charities with lower performance metrics. Part of this reduction in giving, however, appears to be driven by individuals overweighting their dislike of low performance metrics as an excuse not to give. Excuse-driven responses to performance metrics persist even ...

When the performance of a risky asset is frequently assessed, the probability of detecting a loss is high, which averts the loss averse investors. This effect is known as myopic loss aversion (MLA). This paper reexamines several recent experimental studies documenting the existence of MLA. A closer look at the experimental data reveals that the effect of MLA is largely neutralized by the overwe...

A recent study demonstrated that individuals making experience-based choices underweight small probabilities, in contrast to the overweighting observed in a typical descriptive paradigm. We tested whether trial-by-trial feedback in a repeated descriptive paradigm would engender choices more correspondent with experiential or descriptive paradigms. The results of a repeated gambling task indicat...

Non-linear probability weighting is an integral part of descriptive theories of choice under risk such as prospect theory. But why do these objective errors in information processing exist? Should we try to help individuals overcome their mistake of overweighting small and underweighting large probabilities? In this paper, we argue that probability weighting can be seen as a compensation for pr...

Abstract We provide a comprehensive analysis of the impact probability weighting on optimal insurance demand in unified framework. identify decreasing relative overweighting as new local condition function that is useful for comparative static analysis. discuss effects coinsurance, deductible choice, low-probability, high-impact risks versus high-probability, low-impact risks, and presence nonp...

Eliciting all the components of prospect theory – curvature utility function, weighting function and loss aversion remains an open empirical challenge. We develop a semi-parametric method that keeps tractability parametric methods while providing more precise estimates. Applying new to datasets Tversky Kahneman (1992) Bruhin et al. (2010), we reject convexity in domain show probability does not...