“Misconceptions of Chance: Evidence from an Integrated Experiment”
Discussion Seminar
Professor Matthew Rabin, UC Berkeley Department of Economics, University of California – Berkeley
Date:
28 November 2012 (Wednesday)
Time and Venue:
4.00pm – 5.30pm Economics Seminar Room, AS2/03-12
(joint with Dan Benjamin and Don Moore). This paper describes results of an incentivized experiment investigating biases that jointly imply logically inconsistent beliefs about random samples. We find that people think past streaks predict reversals, consistent with the gambler’s fallacy.
Consistent with “support theory,” we find that eliciting beliefs about the union of two ranges of outcomes, relative to the two ranges separately, decreases the total probability assigned to those outcomes. And we confirm earlier findings of Non-Belief in the Law of Large Numbers: people vastly exaggerate the likelihood that 1,000-flip samples that would deviate substantially from 50% heads. Professor Rabin will integrate the presentation of the findings of this experiment with his recent theory work attempting to formalize the departures from rationality found in this experiment and elsewhere.
“What Do (Open-Minded) Economists Want? Psychological and Experimental Evidence That Can Improve Economics”
Discussion Seminar
Professor Matthew Rabin, UC Berkeley Department of Economics, University of California – Berkeley
Date:
20 November 2012 (Tuesday)
Time and Venue:
10.30am – 12.00pm Seminar Room 3-5, Level 3 Mochtar Riady Building
Professor Rabin will give an informal talk describing his perspectives how economists can and can't take advantage of psychological research, and try to provide critical comments how experimental research might be modified to lend itself to greater influence in economics and other social science.
"Using Prospect Theory to Analyze New Risks (Ambiguity) in a Large Representative Sample and to Explain Real Investment Decisions"
Research Seminar
Professor Peter P. Wakker, Department of Econometrics, Erasmus School of Economics
Date:
18 September 2012 (Tuesday)
Time and Venue:
10.00am – 11.30am Seminar Room 3-5, Level 3 Mochtar Riady Building
Since Keynes (1921) & Knight (1921) we know that uncertainties usually do not come with objective statistical probabilities. De Finetti (1931) and Savage (1954) proposed to still use probabilities in such cases, which then have to be subjective. However, Ellsberg (1961) showed that in most cases no subjective probabilities can be assigned in any traditional sense (ambiguity). Hence we need fundamentally new models. Only at the end of the 1980s, Gilboa & Schmeidler succeeded in introducing such models. The first ones were all theoretical and normatively motivated, assuming expected utility for known probabilities and focusing on ambiguity aversion. Tversky & Kahneman (1992) incorporated the Gilboa-Schmeidler ideas into prospect theory, leading to the first empirically realistic model of ambiguity.
We introduce the source model, a special tractable version of prospect theory. It yields exact predictions and ambiguity premiums, and easy graphs to fully capture ambiguity attitudes. We can now let the data speak on ambiguity, showing a rich set of phenomena beyond the mere ambiguity aversion assumed in the normatively oriented theoretical models such as multiple priors, α-maxmin, and smooth utility.
We first implement the source method in a laboratory experiment, and then in an incentivized survey over N=1,935 households, where we investigate the impact of ambiguity on household portfolio choices. In particular, we can now analyze the influence of ambiguity on the nonparticipation paradox of households that invest less in stocks than any normative theory can explain.
Based on
Abdellaoui, Mohammed, Aurélien Baillon, Laetitia Placido, & Peter P. Wakker (2011) “The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation,” American Economic Review 101, 695-723 & http://people.few.eur.nl/wakker/pdf/dwk_amb_finance.pdf
"Decision-Making and the Brain: Toward a biological understanding of consumer and managerial decision-making"
Discussion Seminar
Dr Ming Hsu, Hass School of Business, University of California– Berkeley
Date:
16 July 2012 (Monday)
Time and Venue:
3pm – 6pm Seminar Room 3-5, Level 3 Mochtar Riady Building
Decision-making is a topic that cuts across a number of fields in the social and biological sciences. In recent years there has been increasing interest, aided by important advances in technology, to understand the neural and biological basis of how organisms make decisions that are critical for adaptive behavior. The aim of these talks is to introduce some of these ideas and techniques and their implications of our understanding of consumer and managerial decision-making. I will first introduce from my own research some of the popular techniques used in this emerging field, including (1) functional neuroimaging, (2) focal lesion subjects, (3) genetics, and (4) drug manipulations. We will then discuss ways that behavioral researchers can use these methods to study the biological processes that drive consumer and managerial decision-making.
"Rational and Naive Herding"
Research Seminar
Professor Matthew Rabin, University Of California, Berkeley
Date:
23 February 2012 (Thursday)
Time and Venue:
4pm - 5.30pm Economics Seminar Room, AS2/03-12
An extensive literature identifies how privately-informed rational people who observe the behavior of other privately-informed rational people with similar tastes may come to imitate those people, emphasizing when and how such imitation leads to inefficiency. Professor Rabin will discuss research investigating not the efficiency but instead the behavior of fully rational observational learners. In virtually any setting apart from that most commonly studied in the literature, rational observational learners imitate only some of their predecessors and, in fact, frequently contradict both their private information and the prevailing beliefs that they observe. Necessary and sufficient conditions for rational observational learning to include "anti-imitative" behavior are discussed: fixing other observed actions, a person regards a state of the world as less likely the more a predecessor's action indicates belief in that state. Both the behavioral and efficiency implications of pure rationality will be contrasted with a simple model of naive herding that predicts more universal imitation and more universal inefficiencies.
"The Promise and Pitfalls of Genoeconomics"
Research Seminar
Dr. Daniel Benjamin, Cornell University
Date:
14 February 2012 (Tuesday)
Time and Venue:
4pm - 5.30pm Economics Seminar Room, AS2/03-12
I will review existing research at the intersection of genetics and economics, relates some of my own experiences, present some new findings, and survey the prospects of this emerging field. Twin studies imply that economic outcomes and preferences appear to be about as heritable as many physical and psychological traits, once measurement error is accounted for. Turning from traditional twin studies to modern genetic association studies, I will overview what I see as the main ways that direct measurement of genetic variation across individuals is likely to contribute to economics, and I will outline the challenges that have slowed progress in realizing these contributions. The most urgent problem facing researchers in this field is that most existing studies using genetic data are dramatically underpowered, leading to a large fraction of false positives in the set of published associations. I will suggest a number of possible strategies for improving power and remedying this problem: (i) pooling datasets; (ii) using statistical techniques that examine the joint effects of genes on outcomes; and (iii) measuring more biologically proximate traits.
"Mispredicting Tastes: Evidences, Models, and Implications"
Research Seminar
Professor Matthew Rabin, University Of California, Berkeley
Date:
8 February 2012 (Wednesday)
Time and Venue:
1030-1200pm Seminar Room 5-4, Level 5 Moctar Riady Building
People exaggerate the degree to which their future tastes will resemble their current tastes. Professor Rabin provides evidence for the existence of such a bias in predicting tastes, presents a simple formal model of the bias used by economists, and discusses some of its implications.