On loss aversion, level-1 reasoning, and betting | Zendy

Ido Erev | Zendy; S. Gilat | Zendy; Davide Marchiori | Zendy; Doron Sonsino | Zendy

AI Assistant Blog Pricing

Home ZAIA Blog

Open Access

On loss aversion, level-1 reasoning, and betting

Author(s) -

Ido Erev,

S. Gilat,

Davide Marchiori,

Doron Sonsino

Publication year - 2014

Publication title -

international journal of game theory

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.461

H-Index - 44

eISSN - 1432-1270

pISSN - 0020-7276

DOI - 10.1007/s00182-014-0421-2

Subject(s) - loss aversion , overconfidence effect , assertion , economics , prospect theory , risk aversion (psychology) , framing (construction) , set (abstract data type) , behavioral economics , lottery , econometrics , expected utility hypothesis , psychology , microeconomics , social psychology , financial economics , computer science , structural engineering , engineering , programming language

Previous research suggests that human reaction to risky opportunities reflects two contradicting biases: “loss aversion”, and “limited level of reasoning” that leads to overconfidence. Rejection of attractive gambles is explained by loss aversion, while counterproductive risk seeking is attributed to limited level of reasoning. The current research highlights a shortcoming of this popular (but often implicit) “contradicting biases” assertion. Studies of “negative-sum betting games” reveal high rate of counterproductive betting even when limited level of reasoning and loss aversion imply no betting. The results reflect two reasons for the high betting rate: initial tendency to participate and slow learning. Under certain conditions, the observed betting rate was higher than the rate predicted under random choice even after 250 trials with immediate feedback. These results can be captured with a model that assumes a tendency to select strategies that have led to good outcomes in a small set of similar past experiences, and allows for an initial framing effect.

The content you want is available to Zendy users.

Already have an account? Click here to sign in.

Having issues? You can contact us here

Accelerating Research