Preferences under risk: content-dependent behavior and psychological processing

A common view in economics and psychology is that decision agents achieve their choices and express their respective preferences by computing probabilistic properties (probabilities and money) from a decisionmaking context (e.g., von Neumann and Morgenstern, 1947; Tversky and Kahneman, 1992; Starmer, 2000). In this computational processing, the main psychological mechanism requires that decision agents are able to integrate economic (contextual) attributes such as money and probabilities into subjective values; in other words people are able to construct and employ psycho-economic scales. Subsequently, when making a choice, decision agents are supposed to perform tradeoffs between the computed outputs (psycho-economic variables such as expected values) and certain monetary alternatives (see Kahneman and Tversky, 1979; Tversky and Kahneman, 1992

Betting on odds on Favorites as an Optimal Choice in Cumulative Prospect Theory

It is well known that the parametric version of Cumulative Prospect theory (CPT) proposed by Kahneman and Tversky (1979) and Tversky and Kahneman (1992) (KT) can explain gambling at actuarially unfair odds on long shots due to the over weighting of small probabilities. However betting on odds favorites appears problematic. We demonstrate using a parametric model of Cumulative Prospect Theory that nests that of Kahneman and Tversky that if agents are risk averse enough over gains and risk-seeking enough over losses then they will gamble on odds on chances at actuarially unfair odds even when there is no probability distortion. This previously unappreciated fact is interesting since many experimental results suggest that some respondents are very risk averse over gains.

Loss Aversion, Presidential Responsibility, and Midterm Congressional Elections

I explore a behavioral model of political participation, first introduced by Quattrone and Tversky [1988], based on the primitives of prospect theory, as defined by Kahneman and Tversky [1979]. The model offers an alternative explanation for why the President’s party tends to lose seats in midterm congressional elections. The model is examined empirically and compared against competing explanations for the “midterm phenomenon”.Loss aversion, midterm elections, congressional elections, negative voting, midterm effect

Learning Tversky Similarity

In this paper, we advocate Tversky's ratio model as an appropriate basis for computational approaches to semantic similarity, that is, the comparison of objects such as images in a semantically meaningful way. We consider the problem of learning Tversky similarity measures from suitable training data indicating whether two objects tend to be similar or dissimilar. Experimentally, we evaluate our approach to similarity learning on two image datasets, showing that is performs very well compared to existing methods

Bank Risk-Taking in a Prospect Theory Framework Empirical Investigation in the Emerging Markets’ Case

The purpose of this paper is to investigate the validity of some behavioral conjectures as alternative explanations of bank risk-taking behavior. We especially focus on the different valuation of gains and losses relative to a reference point, and the changing attitude toward risk conditional on the domain (gains vs losses) features (Tversky and Kahneman 1992). We follow a methodology based on Fiegenbaum and Thomas (1988) and the Fishburn (1977) measure of risk, applied to a sample of banks from emerging market economies. Preliminary results show that the Tversky and Kahneman (1992) framework could provide an alternative for explaining risk-taking behavior in the banking industry. Bankers located above benchmark levels, exhibit risk aversion. Although, further investigations are needed in order to consolidate our conclusions.Cumulative Prospect Theory, bank risk taking, emerging market economies

Does the Basketball Market Believe in the 'Hot Hand,'?

Most people who watch basketball believe in the "hot hand": Players who make a shot are more likely to hit the next shot than players who miss a shot (i.e., shots are positively autocorrelated rather than independent). Almost everyone in the sample studied by Thomas Gilovich, Robert Vallone, and Amos Tversky (1985), including several successful professionals, believed in the hot hand