The Impact of Institutions on the Decision How to Decide

The human mind is not a general problem solving machine. Instead of deliberately, consciously and serially processing the available information, men can rely on routines, rules, roles or affect for the purpose. They can bring in technology, experts or groups. For all of these reasons, men have a plurality of problem solving modes at their disposition. Often, the meta-choice of problem solving mode matters for behavioural output. Some performance standards are only to be met if a certain problem solving mode is used, like a well-established skill. Other requirements are easier to fulfil with some problem solving modes. This explains why institutions frequently impact on the choice of problem solving mode. To show how institutions are able to do that, a model of problem solving modes is developed. It allows to systematise the access points for institutional intervention.Decision Making, Problem Solving, Institutions

Communicating Asset Risk: How the format of historic volatility information affects risk perception and investment decisions

An experiment examined the effect that the type and presentation format of information about investment options have on expectations held by investors about asset risk, returns, and volatility. Some respondents were provided with the names of investment options in addition to historical (1987-97) volatility data, and some were not. Historical volatility was presented either as a bar graph of returns per year or as a continuous density distribution of returns over the 10-year period. Risk and volatility perceptions both varied significantly as a function of type and format of information, but in different ways. Biases in risk perception, but not in volatility forecasts, affected portfolio decisions.

Who’s Afraid of a Poor Old Age?: Risk Perception in Risk Management Decisions

Retirement planning and voluntary as well as mandated contributions to pension plans require a series of decisions under uncertainty. Those range from initial decisions about the magnitude of contributions and allocation across different investment options and choice of option providers, to periodic reviews of these decisions in light of possible changes in goals or circumstances. Behavioral decision research provides a series of lessons about how such decisions are made and thus for the optimal design of pension plans. This chapter will addresses the role of affect in perceptions of risk and subsequent decisions to take actions that reduce or manage perceived risks. I review evidence showing that individual and group differences in risk perception, much more than differences in risk attitude, are responsible for differences in the choices people make. If people fail to be alarmed about a risk or hazard, they fail to take precautions. Risk perception, on the other hand, is predictable from general characteristics of the hazard and from prior, personal history. The risks associated with inadequate retirement planning have all the characteristics associated with hazards that do not evoke strong visceral reactions

Testing Invariance in Risk Taking: A Comparison Between Anglophone and Francophone Groups

This article investigates the measurement invariance of 3 related constructs across 2 groups sampled from Anglophone and Francophone adult populations. Multiple-group confirmatory factor analyses explored the factor structures of the Domain-Specific Risk-Taking (DOSPERT) Scale (Weber, Blais, & Betz, 2002), the Risk-Taking scale of the Jackson Personality Inventory (Jackson, 1994), and the Sensation-Seeking Scale (Zuckerman, 1980; 1994) both within and between the 2 groups of 172 Anglophone and 187 Francophone participants. The psychometric properties of the original and translated instruments are discussed, as is the meaningfulness of using these scales in these populations. Le présent article se penche sur l’invariance des mesures de trois construits corrélés pour deux groupes échantillonnés issus de populations adultes anglophones et francophones. Des analyses factorielles confirmatoires de groupes multiples ont été conduites sur les structures factorielles de l’échelle Domain-Specific Risk-Taking (DOSPERT) (Weber, Blais, et Betz, 2002), de l’échelle de prise de risque de l’inventaire de personnalité (Personality Inventory) de Jackson (Jackson, 1994), et de l’échelle de recherche de sensations (Sensation-Seeking Scale) de Zuckerman (Zuckerman, 1980; 1994) aussi bien à l’intérieur de deux groupes de 172 participants anglophones et de 187 participants francophones qu’entre ces deux mêmes groupes. Nous discutons des propriétés psychométriques des instruments originaux et traduits, de même que de la pertinence d’utiliser ces échelles au sein des populations en question.measurement invariance, psychometric scale, risk taking, sensation seeking, échelle psychométrique, invariance des mesures, prise de risques, recherche de sensations

Investment decisions and time horizon: Risk perception and risk behavior in repeated gambles

To investigate the effect of time horizon on investment behavior, this paper reports the results of an experiment in which business graduate students provided certainty equivalents and judged various dimensions of the outcome distribution of simple gambles that were played either once or repeatedly for 5 or 50 times. Systematic mistakes in the ex-ante estimations of the distributions of outcomes after (independent) repeated plays were observed. Despite correctly realizing that outcome standard deviation increases with the number of plays, respondents showed evidence of Samuelson's (1963) fallacy of large numbers. Perceived risk judgments showed only low correlations with standard deviation estimates, but were instead related to the anticipated probability of a loss (which was overestimated), mean excess loss, and the coe±cient of variation. Implications for future research and practical implications for financial advisors are discussed

Communicating asset risk : how the format of historic volatility information affects risk perception and investment decisions

An experiment examined the effect that the type and presentation format of information about investment options have on expectations held by investors about asset risk, returns, and volatility. Some respondents were provided with the names of investment options in addition to historical (1987-97) volatility data, and some were not. Historical volatility was presented either as a bar graph of returns per year or as a continuous density distribution of returns over the 10-year period. Risk and volatility perceptions both varied significantly as a function of type and format of information, but in different ways. Biases in risk perception, but not in volatility forecasts, affected portfolio decisions

A Psychological Perspective of Financial Panic

Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may A Psychological Perspective of Financial Panic Anat Bracha and Elke U. Weber Abstract: In spite of large number of financial crises, often depicted as episodes of financial panic, the notion of panic in financial markets is not very well understood. Many have argued that in order to understand financial crises, and in particular panic events, we need to go beyond classic economic arguments. This paper is an effort in that direction, in which we attempt to give a psychological account of panic and of panic in financial markets in particular, by discussing uncertainty, the desire for predictability and control, the illusion of control, and confidence. We suggest how one might incorporate these psychological insights into existing economic models

A Domain-Specific Risk-Taking (DOSPERT)Scale for Adult Populations

This paper provides a revised version of the original Domain-Specific Risk-Taking (DOSPERT) scale developed by Weber, Blais, and Betz (2002) that is shorter and applicable to a broader range of ages, cultures, and educational levels. It also provides a French translation of the revised scale. Using multilevel modeling, we investigated the risk-return relationship between apparent risk taking and risk perception in 5 risk domains. The results replicate previously reported differences in reported degree of risk taking and risk perception at the mean level of analysis. The multilevel modeling shows, more interestingly, that within-participants (i.e., individual-level) variation in risk taking across the 5 content domains of the scale was about 7 times as large as between-participants variation. We discuss the implications of our findings in terms of the person-situation debate related to risk attitude as a stable trait. Le présent document propose une version révisée de l’échelle originale Domain-Specific Risk-Taking (DOSPERT) mise de l’avant par Weber, Blais, et Betz (2002). Il s’agit d’une version abrégée qui se veut plus générale, s’adressant à un plus large éventail d’âges, de cultures et de degrés de scolarisation. Ce document offre également une traduction française de l’échelle révisée. Nous avons étudié, à l’aide de la modélisation multiniveaux, la relation risque-rendement entre la prise de risque apparente et la perception du risque dans cinq domaines de risque. Les résultats reproduisent les différences déjà notées au sujet du degré de prise de risque et de la perception du risque au niveau moyen de l’analyse. La modélisation multiniveaux démontre, de façon plus intéressante, que la variation dans la prise de risque pour tous les éléments des domaines de l’échelle était sept fois plus grande chez un même participant (i.e., au niveau individuel) que la variation entre les différents participants. Nous étudions les implications des résultats de l’étude en termes du débat lié à la personne-situation voulant que l’attitude à l’égard du risque soit considérée comme un trait stable.personality, psychometric scale, risk attitude, risk perception, risk taking, attitude vis à vis le risque, échelle psychométrique, perception du risque, personnalité, prise de risques

The Role of Climate Perceptions, Expectations, and Forecasts in Farmer Decision Making: The Argentine Pampas and South Florida: Final Report of an IRI Seed Grant Project

This project sought to extend previous research efforts with both a “front end” – mental models that influence climatic expectations and forecast applications – and a “back end” – the decision processes in response to climate expectations derived from farmers’ mental models and externally-provided information. Research in this report was motivated by three lines of social science inquiry: (a) the importance of subjective perception of risk, (b) differences in the impact of small-probability events when information about them is learned by personal experience over time as opposed to being provided as a statistical summary, and (c) the role of both material and nonmaterial (including cognitive and affective) goals and processes in risky decision making. This study provided multiple insights into determinants of use of climate information related to perception and communication, and some evidence that improved presentation may overcome some of the barriers and enhance utility. We see several avenues for extending results and addressing limitations of the project’s scope and study design