Psychological Expected Utility Theory and Anticipatory Feelings

Caplin, Andrew; Leahy, John

doi:10.1162/003355301556347

Cited by 652 publications

(511 citation statements)

References 35 publications

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“…19 Anxious subjects could reasonably trade off profit from waiting longer for a reduction in anxiety by selling sooner than predicted by a no-anxiety benchmark. This hypothesis is also consistent with a substantial literature on preference for resolution of uncertainty in other areas of economics [29,30,31,32,33,34].…”

Section: Discussionsupporting

confidence: 90%

Anxiety and Learning in Dynamic and Static Clock Game Experiments

2010

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In clock games, agents receive differently-timed private signals when an asset value is above its fundamental. The price crashes to the fundamental when K of N agents have decided to sell. If selling decisions are private, bubbles can be sustained because people delay selling, after receiving signals, knowing that others will delay too. Our results replicate the main features of the one previous experimental study of clock game (in two subject pools): Selling delays are shorter than predicted, but converge toward equilibrium predictions over repeated trials. We also find that delays are shorter in a dynamic game in which selling decisions unfold over time, compared to a static equivalent in which subjects precommit to selling decisions. A model of learning with growing anxiety after signal arrival can reproduce the empirical observations of shorter-than-predicted delay, smaller delay after later signal arrival, and shorter delays in dynamic games.

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Section: Discussionsupporting

confidence: 90%

Anxiety and Learning in Dynamic and Static Clock Game Experiments

2010

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“…A number of theoretical contributions invoke emotions to explain behavior (Wu, 1999;Caplin and Leahy, 2001). Walther (2003Walther ( , 2007, for instance, rationalizes nonlinear probability weighting by generalizing expected utility theory: He assumes that, in addition to monetary outcomes, the decision maker cares about emotions triggered by the resolution of uncertainty.…”

Section: Discussionmentioning

confidence: 99%

Uncertainty Breeds Decreasing Impatience: The Role of Risk Preferences in Time Discounting

2009

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Future events are uncertain by their very nature. Therefore, people's risk preferences are likely to play a role in the valuation of allegedly guaranteed future outcomes. We show that future uncertainty conjointly with people's proneness to nonlinear probability weighting generates a unifying framework for explaining many anomalies in intertemporal choice, such as hyperbolic discounting and subadditivity of discount factors. Moreover, our approach implies that higher uncertainty of future prospects increases the hyperbolicity of discount rates, suggesting that institutional deficiencies such as lack of contract enforcement, may be a source of hyperbolic discounting behavior. Based on an experiment with monetary incentives, we show that people's risk taking behavior is indeed a significant determinant of their time discounting behavior: Greater departures from linear probability weighting predict a stronger decline in impatience on the level of individual behavior.

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“…2 In the large literature on menu choice (Kreps [34]; Dekel, Lipman and Rustichini [14]), an agent anticipates being in one of different preference determining states. And there exist several models of the effects on choice of specific psychological states, such as 'anticipatory feelings' (Caplin and Leahy [8]). In the MMM model the cognitive process underlying choice is summarised by the order in which properties are applied.…”

Section: Introductionmentioning

confidence: 99%

State dependent choice

Manzini

Mariotti

2015

Soc Choice Welf

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We propose a theory of choices that are influenced by the psychological state of the agent. The central hypothesis is that the psychological state controls the urgency of the attributes sought by the decision maker in the available alternatives. While state dependent choice is less restricted than rational choice, our model does have empirical content, expressed by simple 'revealed preference' type of constraints on observable choice data. We demonstrate the applicability of simple versions of the framework to economic contexts. We show in particular that it can explain widely researched anomalies in the labour supply of taxi drivers. JEL codes: D01. Keywords: Bounded rationality, procedural rationality, utility maximization, choice behavior. * This paper radically revises and supersedes a previous paper entitled 'Moody Choice'. We are grateful for helpful comments to two anonymous referees, the Editor in charge Clemens Puppe, Attila Ambrus, Sophie Bade, Nick Baigent, Vince Crawford, Stephan Dickert, Yorgos Gerasimou, Andreas Gloeckner, Steffen Huck, Silvia Milano, Mauro Papi, Daniel Sgroi, Chris Tyson, Lin Zhang as well as several seminar audiences. We've had numerous inspiring discussions with Michael Mandler on related topics. Financial support through ESRC grant RES-000-22-3474 is gratefully acknowledged.

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Psychological Expected Utility Theory and Anticipatory Feelings

Cited by 652 publications

References 35 publications

Anxiety and Learning in Dynamic and Static Clock Game Experiments

Anxiety and Learning in Dynamic and Static Clock Game Experiments

Uncertainty Breeds Decreasing Impatience: The Role of Risk Preferences in Time Discounting

State dependent choice

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