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Is There a “Pessimisticâ€\x9D Bias in Individual Beliefs? Evidence from a Simple Survey

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Author Info
Selima Mansour
Elyès Jouini ()
Clotilde Napp ()

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Abstract

It is an important issue for economic and finance applications to determine whether individuals exhibit a behavioral bias toward pessimism in their beliefs, in a lottery or more generally in an investment opportunities framework. In this paper, we analyze the answers of a sample of 1,540 individuals to the following question “Imagine that a coin will be flipped 10 times. Each time, if heads, you win $$10\texttt{C}\!\!\!\rule[2.3pt]{.4em}{.3pt}\!\!\rule[3.3pt]{ .4em}{.3pt}$$ . How many times do you think that you will win?â€\x9D The average answer is surprisingly about 3.9 which is below the average 5, and we interpret this as a pessimistic bias. We find that women are more “pessimisticâ€\x9D than men, as are old people relative to young. We also analyze how our notion of pessimism is related to more general notions of pessimism previously introduced in psychology. Copyright Springer Science+Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s11238-006-9014-2
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Publisher Info
Article provided by Springer in its journal Theory and Decision.

Volume (Year): 61 (2006)
Issue (Month): 4 (December)
Pages: 345-362
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Handle: RePEc:kap:theord:v:61:y:2006:i:4:p:345-362

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Web page: http://www.springerlink.com/link.asp?id=100341

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Related research
Keywords: judged probability; lottery; pessimism;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Hartog, Joop & Ferrer-i-Carbonell, Ada & Jonker, Nicole, 2002. "Linking Measured Risk Aversion to Individual Characteristics," Kyklos, Blackwell Publishing, vol. 55(1), pages 3-26.
  2. Beattie, Jane & Loomes, Graham, 1997. "The Impact of Incentives upon Risky Choice Experiments," Journal of Risk and Uncertainty, Springer, vol. 14(2), pages 155-68, March. [Downloadable!] (restricted)
  3. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March. [Downloadable!] (restricted)
  4. Camerer, Colin F. & Hogarth, Robin M., 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Working Papers 1059, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  5. Masako N. Darrough, 2002. "A Positive Model of Earnings Forecasts: Top Down versus Bottom Up," Journal of Business, University of Chicago Press, vol. 75(1), pages 127-152, January. [Downloadable!]
  6. Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 7-42, December. [Downloadable!] (restricted)
  7. Ritov, Ilana, 1996. "Probability of Regret: Anticipation of Uncertainty Resolution in Choice," Organizational Behavior and Human Decision Processes, Elsevier, vol. 66(2), pages 228-236, May. [Downloadable!] (restricted)
  8. Weil, Philippe, 1989. "The equity premium puzzle and the risk-free rate puzzle," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 401-421, November. [Downloadable!] (restricted)
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  9. Clotilde Napp & Elyès Jouini, 2006. "Heterogeneous Beliefs and Asset Pricing in Discrete Time," Post-Print halshs-00151536_v1, HAL. [Downloadable!]
  10. Abel, Andrew B., 2002. "An exploration of the effects of pessimism and doubt on asset returns," Journal of Economic Dynamics and Control, Elsevier, vol. 26(7-8), pages 1075-1092, July. [Downloadable!] (restricted)
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