Accommodating stake effects under prospect theory

One of the stylized facts underlying prospect theory is a four-fold pattern of risk preferences. People have been shown to be risk seeking for small probability gains and large probability losses, while being risk averse for large probability gains and small probability losses. Another fourfold pattern of risk preferences over outcomes, postulated by Harry Markowitz in 1952, has received much less attention and is currently not integrated into prospect theory. In two experiments, we show that risk preferences may change over outcomes. While we find people to be risk seeking for small outcomes, this turns to risk neutrality and later risk aversion as stakes increase. We then show how a one-parameter logarithmic utility function fits such stake effects significantly better under prospect theory than the power or exponential functions mostly used when fitting prospect theory models. We further investigate the extent to which the use of ill-suited functional forms to represent utility may result in violations of prospect theory, and whether such violations disappear when using logarithmic utility

How do risk attitudes affect measured confidence?

We examine the relationship between confidence in own absolute performance and risk attitudes using two confidence elicitation procedures: self-reported (non-incentivised) confidence and an incentivised procedure that elicits the certainty equivalent of a bet based on performance. The former procedure reproduces the “hard-easy effect” (underconfidence in easy tasks and overconfidence in hard tasks) found in a large number of studies using non-incentivised self-reports. The latter procedure produces general underconfidence, which is significantly reduced, but not eliminated when we filter out the effects of risk attitudes. Finally, we find that self-reported confidence correlates significantly with features of individual risk attitudes including parameters of individual probability weighting

Reciprocity and the tragedies of maintaining and providing the commons

Social cooperation often requires collectively beneficial but individually costly restraint to maintain a public good, or it needs costly generosity to create one. Status quo effects predict that maintaining a public good is easier than providing a new one. Here, we show experimentally and with simulations that even under identical incentives, low levels of cooperation (the ‘tragedy of the commons’) are systematically more likely in maintenance than provision. Across three series of experiments, we find that strong and weak positive reciprocity, known to be fundamental tendencies underpinning human cooperation, are substantially diminished under maintenance compared with provision. As we show in a fourth experiment, the opposite holds for negative reciprocity (‘punishment’). Our findings suggest that incentives to avoid the ‘tragedy of the commons’ need to contend with dilemma specific reciprocity

Search for new phenomena in final states with an energetic jet and large missing transverse momentum in pp collisions at √ s = 8 TeV with the ATLAS detector

Results of a search for new phenomena in final states with an energetic jet and large missing transverse momentum are reported. The search uses 20.3 fb−1 of √ s = 8 TeV data collected in 2012 with the ATLAS detector at the LHC. Events are required to have at least one jet with pT > 120 GeV and no leptons. Nine signal regions are considered with increasing missing transverse momentum requirements between Emiss T > 150 GeV and Emiss T > 700 GeV. Good agreement is observed between the number of events in data and Standard Model expectations. The results are translated into exclusion limits on models with either large extra spatial dimensions, pair production of weakly interacting dark matter candidates, or production of very light gravitinos in a gauge-mediated supersymmetric model. In addition, limits on the production of an invisibly decaying Higgs-like boson leading to similar topologies in the final state are presente

Gender Differences in Sleep Deprivation Effects on Risk and Inequality Aversion: Evidence from an Economic Experiment

Excessive working hours—even at night—are becoming increasingly common in our modern 24/7 society. The prefrontal cortex (PFC) is particularly vulnerable to the effects of sleep loss and, consequently, the specific behaviors subserved by the functional integrity of the PFC, such as risk-taking and pro-social behavior, may be affected significantly. This paper seeks to assess the effects of one night of sleep deprivation on subjects’ risk and social preferences, which are probably the most explored behavioral domains in the tradition of Experimental Economics. This novel cross-over study employs thirty-two university students (gender-balanced) participating to 2 counterbalanced laboratory sessions in which they perform standard risk and social preference elicitation protocols. One session was after one night of undisturbed sleep at home, and the other was after one night of sleep deprivation in the laboratory. Sleep deprivation causes increased sleepiness and decreased alertness in all subjects. After sleep loss males make riskier decisions compared to the rested condition, while females do the opposite. Females likewise show decreased inequity aversion after sleep deprivation. As for the relationship between cognitive ability and economic decisions, sleep deprived individuals with higher cognitive reflection show lower risk aversion and more altruistic behavior. These results show that one night of sleep deprivation alters economic behavior in a gender-sensitive way. Females’ reaction to sleep deprivation, characterized by reduced risky choices and increased egoism compared to males, may be related to intrinsic psychological gender differences, such as in the way men and women weigh up probabilities in their decision-making, and/or to the different neurofunctional substrate of their decision-making.The authors acknowledge financial support from the Spanish Ministry of Economic Competititveness (ECO2012-34928), Italian Ministry of University and Research MIUR (PRIN 20103S5RN3_002), Generalitat Valenciana (Research Projects Gruposo3/086), the Instituto Valenciano de Investigaciones Económicas (IVIE), and the Ministero della Salute (RF-2009-1528677)

Expert Financial Advice Neurobiologically “Offloads” Financial Decision-Making under Risk

BACKGROUND: Financial advice from experts is commonly sought during times of uncertainty. While the field of neuroeconomics has made considerable progress in understanding the neurobiological basis of risky decision-making, the neural mechanisms through which external information, such as advice, is integrated during decision-making are poorly understood. In the current experiment, we investigated the neurobiological basis of the influence of expert advice on financial decisions under risk. METHODOLOGY/PRINCIPAL FINDINGS: While undergoing fMRI scanning, participants made a series of financial choices between a certain payment and a lottery. Choices were made in two conditions: 1) advice from a financial expert about which choice to make was displayed (MES condition); and 2) no advice was displayed (NOM condition). Behavioral results showed a significant effect of expert advice. Specifically, probability weighting functions changed in the direction of the expert's advice. This was paralleled by neural activation patterns. Brain activations showing significant correlations with valuation (parametric modulation by value of lottery/sure win) were obtained in the absence of the expert's advice (NOM) in intraparietal sulcus, posterior cingulate cortex, cuneus, precuneus, inferior frontal gyrus and middle temporal gyrus. Notably, no significant correlations with value were obtained in the presence of advice (MES). These findings were corroborated by region of interest analyses. Neural equivalents of probability weighting functions showed significant flattening in the MES compared to the NOM condition in regions associated with probability weighting, including anterior cingulate cortex, dorsolateral PFC, thalamus, medial occipital gyrus and anterior insula. Finally, during the MES condition, significant activations in temporoparietal junction and medial PFC were obtained. CONCLUSIONS/SIGNIFICANCE: These results support the hypothesis that one effect of expert advice is to "offload" the calculation of value of decision options from the individual's brain

Selling Money on Ebay: A Field Study of Surplus Division

We study the division of trade surplus in a competitive market environment by conducting a natural field experiment on German eBay. Acting as a seller, we offer Amazon gift cards with face values of up to 500 Euro. Randomly arriving buyers, the subjects of our experiment, make price offers according to eBay rules. Using a novel decomposition method, we infer offered shares of trade surplus and find that the average share proposed to the seller amounts to 29%. Additionally, we document: (i) insignificant effects of stake size; (ii) poor use of strategically relevant public information; and (iii) behavioural differences between East and West German subjects