CEU Electronic Theses and Dissertations, 2022
| Author | Kerekov, Rumen |
|---|---|
| Title | Essays on Misperceptions of Probabilities and Values |
| Summary | Chapter 1 Studies have shown that people tend to exhibit dual behavior towards small probability events when facing risky decisions. Under description people overweight them and under experience they underweight them (Barron and Erev, 2003; Hertwig et al. 2004). Numerous reasons have been suggested to explain this perplexing phenomenon, known as the description-experience gap. In this paper we conduct a study implementing a new design in order to identify the factors that contribute to this anomalous duality. The main finding is that difference in representation format in terms of summarized versus sequentially-learned information is the factor that causes this observed difference in people's behavior in risky decisions involving small probabilities. Chapter 2 Studies have shown that utility is reference dependent (Kahneman and Tversky, 1979; Abeler et al. 2011; Kőszegi and Rabin, 2006). Thus, people care not only about the utility from consuming a good or service, but also about the degree to which it exceeds or falls short of expectations. If they are unable to disentangle the surprise factor from the intrinsic value of the outcome, they are predisposed to forming biased beliefs. This phenomenon called misattribution of reference-dependent utility has received little attention in the experimental literature. Through an online experiment on a platform called Prolific we test if people misattribute sensations of elation or disappointment to the underlying value of money. The major finding is that people do not exhibit misattribution of money. Chapter 3 Through an online study we test the speed of adjustment of the expectations-based reference point by comparing participants' willingness to work across different treatment groups. More specifically, we exogenously manipulate participants' expectations about initial monetary endowments and vary the length of the time gap between receiving money and eliciting willingness to work. The major finding is that for higher rewards the expectations-based reference point behaves sluggishly and fails to adjust immediately to new information. It takes between 10 and 15 minutes for the reference point to adjust to new information. This finding differs from some of the literature which argues that reference points adjust instantaneously for small-stake lotteries. For lower rewards there is also an inclination towards sluggish behavior, although its effect is not significant. |
| Supervisor | Marc Kaufmann |
| Department | Economics PhD |
| Full text | https://www.etd.ceu.edu/2022/kerekov_rumen.pdf |
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