In experimental economics, it is observed that individuals having to choose between loteries behave as if they overweigh small probabilities. Somewhat related is the observation that low probability-vivid consequences events are often given a weight that is much higher than their observed frequencies (like plane accidents, for instance). Our claim is that such biases may result from the observa...

Recent research has focused on the difference between description and experience based decisions and on their treatment of rare events. While rare events are overweighted in description based decisions, people tend to behave as if they underweight rare events in decisions based on experience. Barron and Erev (2003) and Hertwig et al. (2004) argue that such findings are substantive and call for ...

We study the design of voting rules for committees representing heterogeneous groups (countries, states, districts) when cooperation among is voluntary. While efficiency recommends weighting proportionally to their stakes, we show that accounting participation constraints entails overweighting some groups, those which incentive cooperate lowest. When collective decisions are not enforceable, in...

Observers show small but systematic deviations from equal weighting of all elements when asked to localize the center of an array of dots. Counter-intuitively, with small numbers of dots drawn from a Gaussian distribution, this bias results in subjects overweighting the influence of outlier dots - inconsistent with traditional statistical estimators of central tendency. Here we show that this a...

We investigate how firms’ cross learning amplifies industry-wide investment waves. Firms’ technologies are subject to idiosyncratic shocks and a common shock, and their asset prices aggregate speculators’ private information about the two types of shocks. In investing, each firm learns from other firms’ prices (in addition to its own) to make better inference about the common shock, leading to ...

Recent behavioral data show that the traditional reduction of all probabilistic choices to choices among monetary gambles is inaccurate. Specifically, while decision makers tend to overweight low probabilities of obtaining any resource, the overweighting is greater when the resource is more emotionally evocative. We present a shunting nonlinear neural network that simulates the biasing effect o...

Abstract Even though recognised to be of increasing importance, robust estimations European farmers’ risk preferences are still scarce. Using an incentivised lab-in-the-field experiment with farmers, free learning bias, this paper analyses the structurally derived parameters based on cumulative prospect theory. The sector studied is apple and pear in Flanders, Belgium. Farmers found highly risk...

In this paper we examine how risk attitudes change with age. We present participants from age 5 to 64 with choices between simple gambles and the expected value of the gambles. The gambles are over both gains and losses, and vary in the probability of the non-zero payoff. Surprisingly, we find that many participants are risk seeking when faced with high-probability prospects over gains and risk...

T paper reports on the results of an experimental elicitation at the individual level of all prospect theory components (i.e., utility, loss aversion, and weighting functions) in two decision contexts: situations where alternatives are described as probability distributions and situations where the decision maker must experience unknown probability distributions through sampling before choice. ...