Disentangling trust from risk-taking: Triadic approach

The willingness to trust human receivers is compared to the inclination to take lottery risk in six distinct scenarios, controlling the return distributions. Trust shows significantly smaller responsiveness to return expectations compared to parallel pure-risk lottery allocation, and paired comparisons reveal that investors sacrifice 5% of the expected payoff to trust anonymous receivers. Trust is more calculated and volatile for males, while appearing relative stable for females. The results complement the accumulating evidence regarding physiological differences between trust and risk, in addition suggesting that the trust-risk gap is larger for females

A Lemma on Proximity of Variances and Expectations

We define a notion of delta-variance maximization and show it implies epsilon-proximity in expactations

Comparative Study of One–Bid versus Two–Bid Auctions

We compare the standard one-bid first price auction to a corresponding two–bid first price auction where each buyer may place two bids: a high bid and a low one and the winner pays his low bid if this was higher than all other bids. We characterize the equilibria of the two mechanisms and prove some results on the ranking of revenues and expected utilities across the two mechanisms for the symmetric case. We show that subjects in a computerized experiment prefer the two–bid auction over the one–bid auction when given the possibility of choosing among the two and we claim that this and other aspects of subjects’ behavior conform to the equilibrium predictions for risk–averse subjects. We also report some discrepancies between the experimental results and the equilibrium predictions and provide some alternative explanations to the observed behavior

Disappointment Aversion in internet Bidding-Decisions

bidding-decisions, disappointment aversion, Internet experiments, Vickrey auctions, D8, C9,

Geanakoplos and Sebenius model with noise

Assume that two risk neutral agents with asymmetric information simultaneously expect a gain from zero-sum betting. Geanakoplos and Sebenius (1983) (henceforth GS) consider the case where the agents may re-evaluate the profitability of betting successively before the payments are realized. They prove that one of the players must reject the proposed bet within some finite number $(N_0)$ of re-evaluation rounds. This paper extends the GS model to the case where there exists a small probability that players accept the bet when they should reject it. We claim that, generically, the GS results are not effected by small noise. That is, when is low, the players will reject the bet within $N_0$ iterations with probability close to one. Surprisingly, we find a non-generic example where - for every positive - the agents keep expecting a gain from betting forever. Our main Theorem, however, says that even when the noise is large and even in such non generic examples one of the following two alternatives must hold: (A) Some agent expects a loss from betting (and thus rejects the bet with high probability) after some finite number of re-evaluation rounds, or (B) The expected gain from betting goes to zero for both agents. Moreover, if there is a small cost to entertaining the bet, then some player must expect a loss from betting eventually.Zero-sum betting · asymmetric information · noisy information

On Preference for Flexibility and Complexity Aversion: Experimental Evidence 1

Desire for flexibility suggests that the value of a choice-menu should increase with the number of options included. Complexity-aversion on the other hand may imply that the value of a menu decreases with its cardinality. We present the results of an experiment where 5 groups of subjects were asked to evaluate saving plans that let the investor choose between alternative indexing-schemes before the saving period ends. The complexity of the different plans was manipulated in two ways: (1) increasing the number of indexing options; (2) reducing the quality of information upon which the choice between different indices is made. We show that an increase in the number of indexing-options produces a negative complexity effect when the quality of information is high. The same change however results in a positive flexibility effect when the quality of information is low. More generally our results suggest a `negative cross interaction of complexity effects' and that the impact of complexity is marginally decreasing. We discuss possible cognitive explanations to the observed evaluation-patterns. Copyright Kluwer Academic Publishers 2001Rationality, Menu-dependence, Information, Flexibility, Complexity,

Experimental internet auctions with random information retrieval

We run an experiment where 97 subjects could retrieve records of completed past auctions before placing their bids in current one-bid, two-bid, and auction-selection games. Each subject was asked to participate in 3 current auctions; but could retrieve up to 60 records of completed (past) auctions. The results reveal a positive relation between the payoffs earned by the subjects and their history-inspection effort. Subjects act as if responding to the average bidding-ratios of the winners in the samples that they have retrieved. They apply intuitive signal-dependent stopping rules like “sample until observing a winner-value close to my won†or “find a close winner-value and try one more history†when sampling the databases. History-inspection directs bidders with relatively high private-valuations to moderate bidding which increases their realized payoffs. (JEL C9 D4 D8) Copyright Economic Science Association 2006Internet-auctions, observational learning, sampling rules, experiments,