The Role of Risk Attitudes in Probabilistic Environments

The Role of Risk Attitudes in Probabilistic Environments

In this work we asked if risk attitudes influence the way agents learn in a probabilistic environment. For that purpose, 31 male students played a version of a well-known game called the multi-armed bandit (with four levers/buttons). We found that after controlling for cognitive abilities (i.e. Raven’s test), risk seekers in gains preferred to explore in this environment, rather than exploit options, even if one of them was clearly more rewarding. We briefly discuss the reasons and some implications for financial decision theories, in particular, for Bayesian and behavioral proposals.

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Revista ODEON

1794-1113

2346-2140

Alonso Díaz, Santiago

Forero, Carlos Esteban

UNIVERSIDAD EXTERNADO DE COLOMBIA

2012-07-01

Colombia

Criteria for decision making under risk and uncertainty

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Kahneman, Daniel & Tversky, Amos. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, vol. 47, n.º 2, pp. 263-292.
Payzan-LeNestour, Elise & Bossaerts, Peter. (2012). Learning to Choose the Right Investment in an Unstable World. Social Science Research Network: http://dx.doi. org/10.2139/ssrn.2056927, Retrieved July 18, 2012.
Pastor, Lubos & Veronesi, Pietro. (2009). Learning in financial markets. National Bureau of Economic Research: http://www.nber.org/papers/w14646.pdf, Retrieved July 27, 2012.
Meeter, Martijn; Radics, G.; Myers, Catherine; Gluck, Mark & Hopkins, Ramona O. (2008). Probabilistic categorization: How do normal and amnesic patients do it? Neuroscience and Biobehavioral Reviews, vol. 32, pp. 237-248.
March, James G. (1996). Learning to be risk averse. Psychological Review, vol. 103, n.º 2, pp. 309-319.
Kuhnen, Camelia M. & Chiao, Joan Y. (2009). Genetic Determinants of Financial Risk Taking. PLoS One, vol. 4, n.º 2, pp. 1-4.
Kuhberger, Anton (1998). The Influence of Framing on Risky Decisions: A Meta-analysis. Organizational Behavior and Human Decision Processes, vol. 75, n.º 1, pp. 23-55.
Kaelbling, Leslie P.; Littman, Michael L. & Moore, Andrew W. (1996). Reinforcement Learning: A Survey. Journal of Artificial Intelligence Research, vol. 4, pp. 237-285.
Plott, Charles R. & Sunder, Shyam. (1988). Rational expectatations and the aggregation of diverse information in laboratory security markets. Econometrica, vol. 56, n.º 5, pp. 1085-1118.
Griffiths, Thomas L.; Kemp, Charles & Tenenbaum, Joshua B. (2008). Bayesian models of cognition. In Sun, Ron., Cambridge Handbook of Computational Cognitive Modeling, pp. 59-101, New York: Cambridge University Press.
Gould, Stephen J. (1981). The Mismeasure of Man. New York: W. W. Norton & Company.
González, Cleotilde; Dana, Jason; Koshino, Hideya & Just, Marcel. (2005). The framing effect and risky decisions: Examining cognitive functions with fMRI. Journal of Economic Psychology, vol. 26, pp. 1-20.
Gigerenzer, Gerd & Brighton, Henry. (2009). Homo Heuristicus: Why biased minds make better inferences. Topics in Cognitive Science, vol. 1, pp. 107-143.
Frydman, Cary; Camerer, Colin; Bossaerts, Peter & Rangel, Antonio. (2010). MAOA-L carriers are better at making optimal financial decisions under risk. Proceedings of The Royal Society, doi:10.1098/rspb.2010.2304.
Frederick, Shane. (2005). Cognitive Reflection and Decision Making. Journal of Economic Perspectives, vol. 19, n.º 4, pp. 25-42.
Piñon, Adelson & Gambara, Hilda. (2005). A meta-analytic review of framing effect: Risky, attribute and goal framing. Psicothema, vol. 17, n.º 2, pp. 325-331.
Robbins, Herbert (1952). Some aspects of the sequential design of experiments. Bulletin of the ams, vol. 58, pp. 527-535.
Estes, William; Campbell, Jane A.; Hatsopoulos, Nicholas & Hurwitz, Joshua B. (1989). Base-rate effects in category learning: A comparison of parallel network and memory storage-retrieval models. Journal of Experimental Psychology, vol. 15, n.º 4, pp. 556-571.
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Schultz, Wolfram (1998). Predictive reward signal of dopamine neurons. Journal of neurophysiology, vol. 80, pp. 1-27.
Yechiam, Eldad & Busemeyer, Jerome R. (2006). The effect of forgone payoffs on underweighting small probability events. Journal of Behavioral Decision Making, vol.19, pp. 1-16.
Vives, Xavier. (1997). Learning from others: A welfare analysis. Games and Economic Behavior, vol. 20, pp. 177-200.
Vermorel, Joannes & Mohri, Mehryar. (2005). Multi-Armed Bandit Algorithms and Empirical Evaluation. Machine Learning: ECML 2005 (Conference Proceedings), pp.437-448, Porto: Springer.
Tversky, Amos & Kahneman, Daniel. (1981). The framing of decisions and the psychology of choice. Science, vol. 211, pp. 453-458.
Sutton, Richard S. & Barto, Andrew G. (1998). Reinforcement Learning: An Introduction. Cambridge, MA: MIT Press.
Sternberg, Robert J. (1999). The theory of successful intelligence. Review of General Psychology, vol. 3, n.º 4, pp. 292-316.
Shin, Jiwoong & Ariely, Dan (2004). Keeping Doors Open: The Effect of Unavailability on Incentives to Keep Options Viable. Management Science, vol. 50, n.º 5, pp. 575-586.
Fama, Eugene F. (1970). Efficient Capital Markets: A review of theory and empirical work. The Journal of Finance, vol. 25, n.º 2, pp. 383-417.
Druckman, James N. (2001). Evaluating framing effects. Journal of Economic Psychology, vol. 22, pp. 91-101.
Dreber, Anna; Rand, David G.; Wernerfelt, Nils.; Garcia, Justin R.; Vilar, Miguel G.; Lum, Koji & Zeckhauser, Richard. (2011). Dopamine and risk choices in different domains: Findings among serious tournament bridge players. Journal of Risk and Uncertainty, vol. 43, n.º 1, pp. 19-38.
Español
In this work we asked if risk attitudes influence the way agents learn in a probabilistic environment. For that purpose, 31 male students played a version of a well-known game called the multi-armed bandit (with four levers/buttons). We found that after controlling for cognitive abilities (i.e. Raven’s test), risk seekers in gains preferred to explore in this environment, rather than exploit options, even if one of them was clearly more rewarding. We briefly discuss the reasons and some implications for financial decision theories, in particular, for Bayesian and behavioral proposals.
Alonso Díaz, Santiago
Forero, Carlos Esteban
Criteria for decision making under risk and uncertainty
Search
7
Artículo de revista
application/pdf
text/html
Universidad Externado de Colombia
ODEON
https://revistas.uexternado.edu.co/index.php/odeon/article/view/3697
Publication
https://creativecommons.org/licenses/by-nc-sa/4.0/
Bruguier, Antoine J.; Quartz, Steven R. & Bossaerts, Peter L. (2010). Exploring the nature of trader intuition. The Journal of Finance, vol. 65, n.º 5, pp. 1703-1723.
Anderson, Craig A. (2007). Belief perseverance. In Baumeister, Roy F. & Vohs, Kathleen D., Encyclopedia of Social Psychology, pp. 109-110, Thousand Oaks: Sage.
Denrell, Jerker. (2007). “Adaptive Learning and Risk Taking. Psychological Review , Vol. 114, n.º 1, pp. 177-187.
De Martino, Benedetto; Kumaran, Dharshan; Seymour, Ben & Dolan, Raymond J. (2006). Frames, biases and rational decision making in the human brain. Science, Vol. 313, pp. 684-687
Avery, Christopher & Zemsky, Peter. (1998). Multidimensional Uncertainty and Herd Behavior in Financial Markets. The American Economic Review, vol. 88, n.º 4, pp. 724-748.
Banerjee, Abhijit. (1992). A simple model of herd behavior. The Quarterly Journal of Economics, vol. 107, n.º 3, pp. 797-817.
Barberis, Nicholas & Thaler, Richard. (2003). A survey of behavioral finance. In Constantinides, George M., Harris, Milton & Stulz, René M., Handbook of the Economics of Finance: Volume 1B, Financial Markets and Asset Pricing, pp. 1053-1128, North Holland: Elsevier.
Benjamín, Daniel J.; Brown, Sebastián A. & Shapiro, Jesse M. (2006). Who is “Behavioral”? Cognitive Ability and Anomalous Preferences. Social Science Research network: http://dx.doi.org/10.2139/ssrn.675264, Retrieved July 25, 2012.
Daw, Nathaniel D.; O’Doherty, John P.; Dayan, Peter & Seymour, Ben &. Dolan Raymond J. (2006). Cortical substrates for exploratory decisions in humans. nature, Vol. 441, pp. 876-879.
Cohen, Jessica R.; Asarnow, Robert F.; Sabb, Fred W.; Bilder, Robert M.; Bookheimer, Susan Y.; Knowlton, Barbara J.; Poldrack, Russell A. (2010). A unique adolescent response to reward prediction errors. Nature Neuroscience, doi:10.1038/nn.2558 (advanced online publication), Retrieved March 08, 2011.
Cayssials, Alicia; Albajari, Veronica; Aldrey, Adriana; Liporace, Mercedes F.; Naisberg,Carina & Scheinsohn, Maria J. (1993). Normas de la ciudad de Buenos Aires Argentina. In Raven, John C., Test de Matrices Progresivas, pp. 11-17, Argentina: Paidos.
Camerer, Colin; Loewenstein, George & Prelec, Drazen. (2005). Neuroeconomics: How Neuroscience can Inform Economics. Journal of Economic Literature, vol. 43, 9-64.
Burks, Stephen V.; Carpenter, Jeffrey P.; Goette, Lorenz & Rustichini,Aldo. (2009). Cognitive skills affect economic preferences, strategic behavior, and job attachment. PNAS early edition: http://www.pnas.org_cgi_doi_10.1073_pnas.0812360106, Retrieved November 14, 2010.
Journal article
The Role of Risk Attitudes in Probabilistic Environments
https://revistas.uexternado.edu.co/index.php/odeon/article/download/3697/4134
https://revistas.uexternado.edu.co/index.php/odeon/article/download/3697/3827
https://revistas.uexternado.edu.co/index.php/odeon/article/view/3697
2012-07-01T00:00:00Z
2012-07-01T00:00:00Z
2012-07-01
2346-2140
1794-1113
institution UNIVERSIDAD EXTERNADO DE COLOMBIA
thumbnail https://nuevo.metarevistas.org/UNIVERSIDADEXTERNADODECOLOMBIA/logo.png
country_str Colombia
collection Revista ODEON
title The Role of Risk Attitudes in Probabilistic Environments
spellingShingle The Role of Risk Attitudes in Probabilistic Environments
Alonso Díaz, Santiago
Forero, Carlos Esteban
Criteria for decision making under risk and uncertainty
Search
title_short The Role of Risk Attitudes in Probabilistic Environments
title_full The Role of Risk Attitudes in Probabilistic Environments
title_fullStr The Role of Risk Attitudes in Probabilistic Environments
title_full_unstemmed The Role of Risk Attitudes in Probabilistic Environments
title_sort role of risk attitudes in probabilistic environments
title_eng The Role of Risk Attitudes in Probabilistic Environments
description In this work we asked if risk attitudes influence the way agents learn in a probabilistic environment. For that purpose, 31 male students played a version of a well-known game called the multi-armed bandit (with four levers/buttons). We found that after controlling for cognitive abilities (i.e. Raven’s test), risk seekers in gains preferred to explore in this environment, rather than exploit options, even if one of them was clearly more rewarding. We briefly discuss the reasons and some implications for financial decision theories, in particular, for Bayesian and behavioral proposals.
author Alonso Díaz, Santiago
Forero, Carlos Esteban
author_facet Alonso Díaz, Santiago
Forero, Carlos Esteban
topicspa_str_mv Criteria for decision making under risk and uncertainty
Search
topic Criteria for decision making under risk and uncertainty
Search
topic_facet Criteria for decision making under risk and uncertainty
Search
citationissue 7
publisher Universidad Externado de Colombia
ispartofjournal ODEON
source https://revistas.uexternado.edu.co/index.php/odeon/article/view/3697
language Español
format Article
rights http://purl.org/coar/access_right/c_abf2
info:eu-repo/semantics/openAccess
https://creativecommons.org/licenses/by-nc-sa/4.0/
references Kahneman, Daniel & Tversky, Amos. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, vol. 47, n.º 2, pp. 263-292.
Payzan-LeNestour, Elise & Bossaerts, Peter. (2012). Learning to Choose the Right Investment in an Unstable World. Social Science Research Network: http://dx.doi. org/10.2139/ssrn.2056927, Retrieved July 18, 2012.
Pastor, Lubos & Veronesi, Pietro. (2009). Learning in financial markets. National Bureau of Economic Research: http://www.nber.org/papers/w14646.pdf, Retrieved July 27, 2012.
Meeter, Martijn; Radics, G.; Myers, Catherine; Gluck, Mark & Hopkins, Ramona O. (2008). Probabilistic categorization: How do normal and amnesic patients do it? Neuroscience and Biobehavioral Reviews, vol. 32, pp. 237-248.
March, James G. (1996). Learning to be risk averse. Psychological Review, vol. 103, n.º 2, pp. 309-319.
Kuhnen, Camelia M. & Chiao, Joan Y. (2009). Genetic Determinants of Financial Risk Taking. PLoS One, vol. 4, n.º 2, pp. 1-4.
Kuhberger, Anton (1998). The Influence of Framing on Risky Decisions: A Meta-analysis. Organizational Behavior and Human Decision Processes, vol. 75, n.º 1, pp. 23-55.
Kaelbling, Leslie P.; Littman, Michael L. & Moore, Andrew W. (1996). Reinforcement Learning: A Survey. Journal of Artificial Intelligence Research, vol. 4, pp. 237-285.
Plott, Charles R. & Sunder, Shyam. (1988). Rational expectatations and the aggregation of diverse information in laboratory security markets. Econometrica, vol. 56, n.º 5, pp. 1085-1118.
Griffiths, Thomas L.; Kemp, Charles & Tenenbaum, Joshua B. (2008). Bayesian models of cognition. In Sun, Ron., Cambridge Handbook of Computational Cognitive Modeling, pp. 59-101, New York: Cambridge University Press.
Gould, Stephen J. (1981). The Mismeasure of Man. New York: W. W. Norton & Company.
González, Cleotilde; Dana, Jason; Koshino, Hideya & Just, Marcel. (2005). The framing effect and risky decisions: Examining cognitive functions with fMRI. Journal of Economic Psychology, vol. 26, pp. 1-20.
Gigerenzer, Gerd & Brighton, Henry. (2009). Homo Heuristicus: Why biased minds make better inferences. Topics in Cognitive Science, vol. 1, pp. 107-143.
Frydman, Cary; Camerer, Colin; Bossaerts, Peter & Rangel, Antonio. (2010). MAOA-L carriers are better at making optimal financial decisions under risk. Proceedings of The Royal Society, doi:10.1098/rspb.2010.2304.
Frederick, Shane. (2005). Cognitive Reflection and Decision Making. Journal of Economic Perspectives, vol. 19, n.º 4, pp. 25-42.
Piñon, Adelson & Gambara, Hilda. (2005). A meta-analytic review of framing effect: Risky, attribute and goal framing. Psicothema, vol. 17, n.º 2, pp. 325-331.
Robbins, Herbert (1952). Some aspects of the sequential design of experiments. Bulletin of the ams, vol. 58, pp. 527-535.
Estes, William; Campbell, Jane A.; Hatsopoulos, Nicholas & Hurwitz, Joshua B. (1989). Base-rate effects in category learning: A comparison of parallel network and memory storage-retrieval models. Journal of Experimental Psychology, vol. 15, n.º 4, pp. 556-571.
Schultz, Wolfram (1998). Predictive reward signal of dopamine neurons. Journal of neurophysiology, vol. 80, pp. 1-27.
Yechiam, Eldad & Busemeyer, Jerome R. (2006). The effect of forgone payoffs on underweighting small probability events. Journal of Behavioral Decision Making, vol.19, pp. 1-16.
Vives, Xavier. (1997). Learning from others: A welfare analysis. Games and Economic Behavior, vol. 20, pp. 177-200.
Vermorel, Joannes & Mohri, Mehryar. (2005). Multi-Armed Bandit Algorithms and Empirical Evaluation. Machine Learning: ECML 2005 (Conference Proceedings), pp.437-448, Porto: Springer.
Tversky, Amos & Kahneman, Daniel. (1981). The framing of decisions and the psychology of choice. Science, vol. 211, pp. 453-458.
Sutton, Richard S. & Barto, Andrew G. (1998). Reinforcement Learning: An Introduction. Cambridge, MA: MIT Press.
Sternberg, Robert J. (1999). The theory of successful intelligence. Review of General Psychology, vol. 3, n.º 4, pp. 292-316.
Shin, Jiwoong & Ariely, Dan (2004). Keeping Doors Open: The Effect of Unavailability on Incentives to Keep Options Viable. Management Science, vol. 50, n.º 5, pp. 575-586.
Fama, Eugene F. (1970). Efficient Capital Markets: A review of theory and empirical work. The Journal of Finance, vol. 25, n.º 2, pp. 383-417.
Druckman, James N. (2001). Evaluating framing effects. Journal of Economic Psychology, vol. 22, pp. 91-101.
Dreber, Anna; Rand, David G.; Wernerfelt, Nils.; Garcia, Justin R.; Vilar, Miguel G.; Lum, Koji & Zeckhauser, Richard. (2011). Dopamine and risk choices in different domains: Findings among serious tournament bridge players. Journal of Risk and Uncertainty, vol. 43, n.º 1, pp. 19-38.
Bruguier, Antoine J.; Quartz, Steven R. & Bossaerts, Peter L. (2010). Exploring the nature of trader intuition. The Journal of Finance, vol. 65, n.º 5, pp. 1703-1723.
Anderson, Craig A. (2007). Belief perseverance. In Baumeister, Roy F. & Vohs, Kathleen D., Encyclopedia of Social Psychology, pp. 109-110, Thousand Oaks: Sage.
Denrell, Jerker. (2007). “Adaptive Learning and Risk Taking. Psychological Review , Vol. 114, n.º 1, pp. 177-187.
De Martino, Benedetto; Kumaran, Dharshan; Seymour, Ben & Dolan, Raymond J. (2006). Frames, biases and rational decision making in the human brain. Science, Vol. 313, pp. 684-687
Avery, Christopher & Zemsky, Peter. (1998). Multidimensional Uncertainty and Herd Behavior in Financial Markets. The American Economic Review, vol. 88, n.º 4, pp. 724-748.
Banerjee, Abhijit. (1992). A simple model of herd behavior. The Quarterly Journal of Economics, vol. 107, n.º 3, pp. 797-817.
Barberis, Nicholas & Thaler, Richard. (2003). A survey of behavioral finance. In Constantinides, George M., Harris, Milton & Stulz, René M., Handbook of the Economics of Finance: Volume 1B, Financial Markets and Asset Pricing, pp. 1053-1128, North Holland: Elsevier.
Benjamín, Daniel J.; Brown, Sebastián A. & Shapiro, Jesse M. (2006). Who is “Behavioral”? Cognitive Ability and Anomalous Preferences. Social Science Research network: http://dx.doi.org/10.2139/ssrn.675264, Retrieved July 25, 2012.
Daw, Nathaniel D.; O’Doherty, John P.; Dayan, Peter & Seymour, Ben &. Dolan Raymond J. (2006). Cortical substrates for exploratory decisions in humans. nature, Vol. 441, pp. 876-879.
Cohen, Jessica R.; Asarnow, Robert F.; Sabb, Fred W.; Bilder, Robert M.; Bookheimer, Susan Y.; Knowlton, Barbara J.; Poldrack, Russell A. (2010). A unique adolescent response to reward prediction errors. Nature Neuroscience, doi:10.1038/nn.2558 (advanced online publication), Retrieved March 08, 2011.
Cayssials, Alicia; Albajari, Veronica; Aldrey, Adriana; Liporace, Mercedes F.; Naisberg,Carina & Scheinsohn, Maria J. (1993). Normas de la ciudad de Buenos Aires Argentina. In Raven, John C., Test de Matrices Progresivas, pp. 11-17, Argentina: Paidos.
Camerer, Colin; Loewenstein, George & Prelec, Drazen. (2005). Neuroeconomics: How Neuroscience can Inform Economics. Journal of Economic Literature, vol. 43, 9-64.
Burks, Stephen V.; Carpenter, Jeffrey P.; Goette, Lorenz & Rustichini,Aldo. (2009). Cognitive skills affect economic preferences, strategic behavior, and job attachment. PNAS early edition: http://www.pnas.org_cgi_doi_10.1073_pnas.0812360106, Retrieved November 14, 2010.
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