Is the lure of choice reflected in market prices? Experimental evidence based on the 4-door Monty Hall problem
AbstractThe lure of choice is a cognitive bias with important implications for economic behavior. The question of whether this bias survives in market equilibrium is an issue that can be tackled with experimental economics methods. Here, we use the 4-door Monty Hall as a tool to measure the lure of choice both at the individual as well as the market level. We find that if individuals exhibit this bias then market prices also reflect this bias, hence, trading activity alone is not sufficient to reduce or eliminate the lure of choice. The bias, both at the individual as well as the market level, is robust to learning. If at least two traders strongly exhibit this bias, then market prices also strongly reflect this bias. This result has important implications for models with heterogeneous traders. Furthermore, the lure of choice is found to be compatible with event-style market efficiency
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Psychology.
Volume (Year): 30 (2009)
Issue (Month): 2 (April)
Contact details of provider:
Web page: http://www.elsevier.com/locate/joep
2300 Psychology of decision making Cognitive bias Aggregation of errors Lure of choice;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Siddiqi, Hammad, 2013. "Analogy Making, Option Prices, and Implied Volatility," MPRA Paper 48862, University Library of Munich, Germany.
- Siddiqi, Hammad, 2009. "Coarse Thinking and Pricing a Financial Option," MPRA Paper 21749, University Library of Munich, Germany.
- Siddiqi, Hammad, 2013. "Mental Accounting: A Closed-Form Alternative to the Black Scholes Model," MPRA Paper 50759, University Library of Munich, Germany.
- Siddiqi, Hammad, 2010. "The relevance of coarse thinking for investors' willingness to pay: An experimental study," MPRA Paper 23924, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.