Rationally Biased Learning

Are human perception and decision biases grounded in a form of rationality? You return to your camp after hunting or gathering. You see the grass moving. You do not know the probability that a snake is in the grass. Should you cross the grass - at the risk of being bitten by a snake - or make a long, hence costly, detour? Based on this storyline, we consider a rational decision maker maximizing expected discounted utility with learning. We show that his optimal behavior displays three biases: status quo, salience, overestimation of small probabilities. Biases can be the product of rational behavior

Tortious Toxics

In this Article we offer one small idea with potentially large implications. We propose the recognition arid development of a special tort for toxic exposures, where the exposures have not yet led to a physical illness such as cancer. We argue, in brief, that this new tort would, in one simple step, accomplish three things: it would address many of the problems with the courts\u27 current handling of toxic torts; it would consolidate the many overlapping causes of action now pressed in toxic tort cases into one single claim; and it would give expression to the real injury motivating these cases - a dignitary and autonomy-based harm, not a physical one

Judging Similarity among Strings Described By Hierarchical Trees

The paper compares the tree-theoretical model of similarity judgement (in which the similarity between two objects is a function of the distance between them in a conceptual tree) with an averaging model of similarity judgement that is drawn jointly from information integration theory and from current research indicating the prevalence of anchoring and adjustment mechanisms in judgement. Results of an experiment are presented that suggest that even when subjects organize conceptual material as a hierarchical tree, judgments of similarity among the objects are better accounted for by an averaging mechanism than by distances in the tree. These data are discussed in terms of the differences between the representation in which knowledge is encoded and the processes that operate on the represented information

Advancing Understanding of Knowledge\u27s Role in Lay Risk Perception

Emphasizing how knowledge affects lay Risk perception, summarizing studies and suggesting further research, the author differentiates between knowledge production, knowledge dissemination and information processing as affected by, e.g., heuristics and Risk aversion. He also suggests that better understanding of lay knowledge can also illuminate experts\u27 hazard knowledge

An Axiomatization of Linear Cumulative Prospect Theory with Applications to Portfolio Selection and Insurance Demand

The present paper combines loss attitudes and linear utility by providing an axiomatic analysis of corresponding preferences in a cumulative prospect theory (CPT) framework. CPT is one of the most promising alternatives to expected utility theory since it incorporates loss aversion, and linear utility for money receives increasing attention since it is often concluded in empirical research, and employed in theoretical applications. Rabin (2000) emphasizes the importance of linear utility, and highlights loss aversion as an explanatory feature for the disparity of significant small-scale risk aversion and reasonable large-scale risk aversion. In a sense we derive a two-sided variant of Yaari s dual theory, i.e. nonlinear probability weights in the presence of linear utility. The first important difference is that utility may have a kink at the status quo, which allows for the exhibition of loss aversion. Also, we may have different probability weighting functions for gains than for losses. The central condition of our model is termed independence of common increments. The applications of our model to portfolio selection and insurance demand show that CPT with linear utility has more realistic implications than the dual theory since it implies only a weakened variant of plunging.

Epistemological Foundations for Neuroeconomics

Neuroeconomics is an emerging field crossing neuroscientific data, the use of brain-imaging tools, experimental and behavioral economics, and an attempt at a better understanding of the cognitive assumptions that underlie theoretical predictive economic models. In this paper the authors try two things: 1) To assess the epistemological biases that affect Neuroeconomics as it is currently done. A number of significant experiments are discussed in that perspective. 2) To imagine an original way - apart from what is already being done - to run experiments in brain-imaging that are relevant to the discussion of rationality assumptions at the core of economic theory.Neuroeconomics, Rationality Assumptions, Abduction

Risk Marketing

In a modern world increasingly perceived as uncertain, the mere purchase of a household cleaning product, or a seemingly harmless bottle of milk, conveys interrogations about potential hazards, from environmental to health impacts. The main purpose of this article is to suggest that risk could be considered as one of the major dimensions of choice for a wide range of concerns and markets, alongside aspiration/satisfaction, and tackled efficiently by mobilizing the recent findings of cognitive sciences, neurosciences and evolutionary psychology. We feel that consumer research could benefit more widely from psychological and evolutionary-grounded risk theories.We have examined some fifty years of marketing management literature, as well as risk specialized literature, in an attempt to get a grasp of how risk is handled by consumer sciences and of whether or not they make some use of the most recent academic works on mental biases, non mainstream decision-making processes, or evolutionary roots of behavior. We have then tested and formulated several hypothesis regarding risk profiles and preferences in the domain of insurance, by participating to an Axa Research Fund--Paris School of Economics research project.We suggest that consumer profiles could be enriched by risk-taking attitudes, that risk could be part of the 'reason why' of brand positioning, and that brand as well as public policy communication could benefit from a targeted use of risk perception biases.We propose to apply evolutionary based psychological concepts to build perceptual maps describing people and consumers on both aspiration and risk attitude axis, and to design communication tools according to psychological research on message framing and biases. Such an approach mobilizes not only the recent findings of cognitive sciences and neurosciences, but the understanding of the roots of risk attitudes and perception. Those maps and framing could probably be applied to many sectors, markets and public issues, from commodities to personal products and services (food, luxury goods, electronics, financial products, tourism, design or insurance)

Technological Evolution and the Devolution of Corporate Financial Reporting

My claim is that the technology link to the recent disclosure scandals is no coincidence. To be sure, cheating tempts all who seek wealth, in whatever line of business they find themselves. I want to show, however, how the rapid pace of innovation at a number of levels offered motive, opportunity, and rationalization for a downshift in financial reporting norms, which in turn made outright fraud more probable