Prospect theory, constant relative risk aversion, and the investment horizon.
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ABSTRACT:
SUBMITTER: Levy H
PROVIDER: S-EPMC8016345 | biostudies-literature |
REPOSITORIES: biostudies-literature
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Project description:We developed a novel decision-making paradigm that allows us to apply prospect theory in behavioral economics to body mass. 67 healthy young adults completed self-report measures and two decision-making tasks for weight-loss, as well as for monetary rewards. We estimated risk-related preference and loss aversion parameters for each individual, separately for weight-loss and monetary rewards choice data. Risk-seeking tendency for weight-loss was positively correlated with body mass index in individuals who desired to lose body weight, whereas the risk-seeking for momentary rewards was not. Risk-seeking for weight-loss was correlated to excessive body shape preoccupations, while aversion to weight-gain was correlated with self-reports of behavioral involvement for successful weight-loss. We demonstrated that prospect theory can be useful in explaining the decision-making process related to body mass. Applying prospect theory is expected to advance our understanding of decision-making mechanisms in obesity, which might prove helpful for improving healthy choices.
| S-EPMC4371555 | biostudies-literature
Project description:In five experiments (N = 3,828), we investigate whether people prefer investment decisions to be made by human investment managers rather than by algorithms ("robos"). In all of the studies we investigate morally controversial companies, as it is plausible that a preference for humans as investment managers becomes exacerbated in areas where machines are less competent, such as morality. In Study 1, participants rated the permissibility of an algorithm to autonomously exclude morally controversial stocks from investment portfolios as lower than if a human fund manager did the same; this finding was not different if participants were informed that such exclusions might be financially disadvantageous for them. In Study 2, we show that this robo-investment aversion manifests itself both when considering investment in controversial and non-controversial industries. In Study 3, our findings show that robo-investment aversion is also present when algorithms are given the autonomy to increase investment in controversial stocks. In Studies 4 and 5, we investigate choices between actual humans and an algorithm. In Study 4 -which was incentivized-participants show no robo-investment aversion, but are significantly less likely to choose machines as investment managers for controversial stocks. In contrast, in Study 5 robo-investment aversion is present, but it is not different across controversial and non-controversial stocks. Overall, our findings show a considerable mean effect size for robo-investment aversion (d = -0.39 [-0.45, -0.32]). This suggests that algorithm aversion extends to the financial realm, supporting the existence of a barrier for the adoption of innovative financial technologies (FinTech).
| S-EPMC7498032 | biostudies-literature
Project description:We report experimental evidence on second-movers' behavior in the investment game (also known as the trust game) when there exists endowment heterogeneity. Using a within-subject analysis, we investigate whether or not second-movers exhibit some taste for inequality aversion by returning a larger (smaller) share of the available funds to first-movers who are initially endowed with a lesser (larger) endowment, respectively. Our data suggest that second-movers do not take into consideration the level of endowments when making their decisions as their behavior is consistent across distribution of endowments; i.e., they return the same proportion of the available funds regardless of the endowments. We indeed find that some second-movers have a tendency to return what they have received from first-movers. In our data, there is also a substantial proportion of second-movers who are selfish and return nothing. (JEL Codes: C72, C91, D3, D63).
| S-EPMC6198942 | biostudies-literature
Project description:Relative potency plays an important role in toxicology. Estimates of relative potency are used to rank chemicals by their effects, to calculate equivalent doses of test chemicals compared to a standard, and to weight contributions of constituent chemicals when evaluating mixtures. Typically relative potency is characterized by a constant dilution factor, even when non-similar dose-response curves indicate that constancy is inappropriate. Improperly regarding relative potency as constant may distort conclusions and potentially mislead investigators or policymakers. We consider a more general approach that allows relative potency to vary as a function of dose, response, or response quantile. Distinct functions can be defined, each generalizing different but equivalent descriptions of constant relative potency. When two chemicals have identical response limits, these functions all carry fundamentally equivalent information; otherwise, relative potency as a function of response quantile is distinct and embodies a modified definition of relative potency. Which definition is preferable depends on whether one views any differences in response limits as intrinsic to the chemicals or as extrinsic, arising from idiosyncrasies of data sources. We illustrate these ideas with constructed examples and real data. Relative potency functions offer a unified and principled description of relative potency for non-similar dose-response curves.
| S-EPMC3134169 | biostudies-literature
Project description:Introduction: It has been hypothesized that people diagnosed with anxiety and obsessive-compulsive disorder (OCD) exhibit behavioral aberrations when faced with the potential for negative outcomes, but the specific cognitive aspects of decision-making that may be altered have not been systematically studied in clinical populations. Here, we studied decision-making in a clinical cohort using a task that allows for examination of the decision weights and values associated with different choice outcomes. Methods: Patients diagnosed with OCD (n = 10), generalized anxiety disorder (n = 15), social anxiety disorder (n = 14), and healthy controls (n = 20) were given a decision-making task and choices were modeled using a cumulative prospect theory framework. Results: We found OCD patients to have lower value discrimination than controls, as well as less optimal performance on the task, an effect that was mostly driven by trials with only positive outcomes. Discussion: Our results shed light on the cognitive processes that drive altered decision-making under risk in OCD. Specifically, they demonstrate that OCD patients have diminished sensitivity to positive outcomes, which might be associated with risk aversion and altered learning of gain. These findings also extend prior reports, suggesting that altered cognitive processing during decision-making is linked to altered perception of value, but not probability, in these patients.
| S-EPMC6628634 | biostudies-literature
Project description:This study explores whether prior perceived losses affect investment objectives via loss aversion as a mediator and whether the indirect effect is moderated by risk tolerance in a moderated-mediation model. Using retail investors who witnessed a market crash in Bangladesh and experienced losses, the model is tested by employing regression analyses and conditional process. The analyses reveal that prior perceived losses indirectly affect investment objectives (earning a higher expected return and building a financial reserve for future expenses) via mediation of loss aversion. Moderated-mediation model shows that for high-risk-tolerant investors, prior perceived losses indirectly affect investors to invest more for achieving a higher expected return objective and less to achieving building a financial reserve for future expenses, via a low level of loss aversion. These suggest that risk-tolerant investors continue to invest to earn a higher expected return even though they experienced prior losses and are loss-averse.Supplementary informationThe online version contains supplementary material available at 10.1007/s43546-022-00259-6.
| S-EPMC9243710 | biostudies-literature
Project description:This paper puts forward a grey situation group decision-making method on the basis of prospect theory, in view of the grey situation group decision-making problems that decisions are often made by multiple decision experts and those experts have risk preferences. The method takes the positive and negative ideal situation distance as reference points, defines positive and negative prospect value function, and introduces decision experts' risk preference into grey situation decision-making to make the final decision be more in line with decision experts' psychological behavior. Based on TOPSIS method, this paper determines the weight of each decision expert, sets up comprehensive prospect value matrix for decision experts' evaluation, and finally determines the optimal situation. At last, this paper verifies the effectiveness and feasibility of the method by means of a specific example.
| S-EPMC4146360 | biostudies-other
Project description:ObjectivesWe contribute a new methodological approach to the ongoing efforts towards evaluating public health surveillance. Specifically, we apply a descriptive framework, grounded in prospect theory (PT), for the evaluation of decisions on disease surveillance deployment. We focus on two attributes of any surveillance system: timeliness, and false positive rate (FPR).MethodsIn a sample of 69 health professionals from a number of health related networks polled online, we elicited PT preferences, specifically respondents' attitudes towards gains, losses and probabilities (i.e., if they overweight or underweight extreme probabilities) by means of a series of lotteries for either timeliness or FPR. Moreover, we estimated willingness to pay (WTP) for improvements in the two surveillance attributes. For contextualization, we apply our framework to rabies surveillance.ResultsOur data reveal considerable probability weighting, both for gains and losses. In other words, respondents underestimate their chances of getting a good outcome in uncertain situations, and they overestimate their chances of bad outcomes. Moreover, there is convex utility for losses and loss aversion, that is, losses loom larger than gains of the same absolute magnitude to the respondents. We find no differences between the estimated parameters for timeliness and FPR. The median WTP is $7,250 per day gained in detection time and $30 per 1/10,000 reduction in FPR.ConclusionOur results indicate that the biases described by PT are present among public health professionals, which highlights the need to incorporate a PT framework when eliciting their preferences for surveillance systems.
| S-EPMC6513105 | biostudies-literature
Project description:Prospect theory states that the influential power of avoiding negative outcomes is stronger than that of achieving positive outcomes. In a survey context, this theory has been tested with respect to not only participation in a CATI survey, but also giving consent to data linkage in CATI surveys. No study, however, has tested the theory with respect to participation in a CAPI or web survey. This study does so in a mixed-mode panel context; it also tests the moderating effects of time-in-panel, response history, and mode protocol. Results show that the framing of the survey participation request influences participation propensity in a way consistent with prospect theory, but only for relatively recent panel entrants. The opposite effect is found for long-term panel participants. No difference is found between mode protocols.
| S-EPMC6848831 | biostudies-literature
Project description:BackgroundAnxiety disorders are associated with disruptions in both emotional processing and decision making. As a result, anxious individuals often make decisions that favor harm avoidance. However, this bias could be driven by enhanced aversion to uncertainty about the decision outcome (e.g., risk) or aversion to negative outcomes (e.g., loss). Distinguishing between these possibilities may provide a better cognitive understanding of anxiety disorders and hence inform treatment strategies.MethodsTo address this question, unmedicated individuals with pathological anxiety (n = 25) and matched healthy control subjects (n = 23) completed a gambling task featuring a decision between a gamble and a safe (certain) option on every trial. Choices on one type of gamble-involving weighing a potential win against a potential loss (mixed)-could be driven by both loss and risk aversion, whereas choices on the other type-featuring only wins (gain only)-were exclusively driven by risk aversion. By fitting a computational prospect theory model to participants' choices, we were able to reliably estimate risk and loss aversion and their respective contribution to gambling decisions.ResultsRelative to healthy control subjects, pathologically anxious participants exhibited enhanced risk aversion but equivalent levels of loss aversion.ConclusionsIndividuals with pathological anxiety demonstrate clear avoidance biases in their decision making. These findings suggest that this may be driven by a reduced propensity to take risks rather than a stronger aversion to losses. This important clarification suggests that psychological interventions for anxiety should focus on reducing risk sensitivity rather than reducing sensitivity to negative outcomes per se.
| S-EPMC5466268 | biostudies-literature