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Hindsight Bias and Individual Risk Attitude within the Context of Experimental Asset Markets

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Author Info
Boris Maciejovsky ()
Tarek El-Sehitya
Hans Haumerb
Christian Helmensteinc
Erich Kirchlerd

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Abstract

This paper investigates (i) the robustness of hindsight bias in experimental asset markets, (ii) the time invariance of the different experimental risk elicitation methods of certainty equivalents and binary lottery choices, and (iii) their correspondence. The results of our within-subjects approach with 133 traders do not support the conjecture that hindsight bias is a general phenomenon. Furthermore, our findings challenge the presumption of time-stable risk preferences and of procedural invariance with respect to different experimental risk elicitation methods.

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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2002-16.

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Handle: RePEc:esi:discus:2002-16

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Related research
Keywords: Hindsight bias; Risk attitude; Financial markets; Experimental economics; Behavioral finance;

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Find related papers by JEL classification:
C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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. Dittrich, Dennis & Gueth, Werner & Maciejovsky, Boris, 2001. "Overconfidence in Investment Decisions: An Experimental Approach," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Brennan, M J, 1995. "The Individual Investor," Journal of Financial Research, Southern Finance Association and Southwestern Finance Association, vol. 18(1), pages 59-74, Spring.
  3. Rietz, Thomas A, 1993. " Implementing and Testing Risk-Preference-Induction Mechanisms in Experimental Sealed-Bid Auctions," Journal of Risk and Uncertainty, Springer, vol. 7(2), pages 199-213, October.
  4. Cox, James C & Smith, Vernon L & Walker, James M, 1985. "Experimental Development of Sealed-Bid Auction Theory: Calibrating Controls for Risk Aversion," American Economic Review, American Economic Association, vol. 75(2), pages 160-65, May. [Downloadable!] (restricted)
  5. Werner F. M. De Bondt & Richard H. Thaler, 1994. "Financial Decision-Making in Markets and Firms: A Behavioral Perspective," NBER Working Papers 4777, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Weber, Martin & Keppe, Hans-Jurgen & Meyer-Delius, Gabriela, 2000. "The impact of endowment framing on market prices -- an experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 41(2), pages 159-176, February. [Downloadable!] (restricted)
  7. Krahnen, Jan Pieter & Rieck, Christian & Theissen, Erik, 1997. "Inferring risk attitudes from certainty equivalents: Some lessons from an experimental study," Journal of Economic Psychology, Elsevier, vol. 18(5), pages 469-486, September. [Downloadable!] (restricted)
  8. Myagkov, Mikhail & Plott, Charles R, 1997. "Exchange Economies and Loss Exposure: Experiments Exploring Prospect Theory and Competitive Equilibria in Market Environments," American Economic Review, American Economic Association, vol. 87(5), pages 801-28, December. [Downloadable!] (restricted)
  9. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October. [Downloadable!] (restricted)
  10. Kirchler, Erich & Maciejovsky, Boris, 2002. " Simultaneous Over- and Underconfidence: Evidence from Experimental Asset Markets," Journal of Risk and Uncertainty, Springer, vol. 25(1), pages 65-85, July. [Downloadable!] (restricted)
  11. Christensen-Szalanski, Jay J. J. & Willham, Cynthia Fobian, 1991. "The hindsight bias: A meta-analysis," Organizational Behavior and Human Decision Processes, Elsevier, vol. 48(1), pages 147-168, February. [Downloadable!] (restricted)
  12. B. Maciejovsky & E. Kirchler, . "Simultaneous Over- and Underconfidence: Evidence from Experimental Asset Markets," Sonderforschungsbereich 373 2001-44, Humboldt Universitaet Berlin.
  13. Stahlberg, Dagmar & Eller, Frank & Maass, Anne & Frey, Dieter, 1995. "We Knew It All Along: Hindsight Bias in Groups," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(1), pages 46-58, July. [Downloadable!] (restricted)
  14. Selten, Reinhard & Abdolkarim Sadrieh & Klaus Abbink, 1995. "Money does Not Induce Risk Neutral Behavior, but Binary Lotteries Do even Worse," Discussion Paper Serie B 343, University of Bonn, Germany.
  15. Walker, James M & Smith, Vernon L & Cox, James C, 1990. " Inducing Risk-Neutral Preferences: An Examination in a Controlled Market Environment," Journal of Risk and Uncertainty, Springer, vol. 3(1), pages 5-24, March.
  16. Gerlinde Fellner & Boris Maciejovsky, . "Risk Attitude and Market Behavior: Evidence from Experimental Asset Markets," Papers on Strategic Interaction 2002-34, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
    Other versions:
  17. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June. [Downloadable!] (restricted)
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(explanations, 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. Gerlinde Fellner & Boris Maciejovsky, . "Risk Attitude and Market Behavior: Evidence from Experimental Asset Markets," Papers on Strategic Interaction 2002-34, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
    Other versions:
  2. Erich Kirchler & Boris Maciejovsky & Martin Weber, 2004. "Framing Effects, Selective Information and Market Behavior ­ An Experimental Analysis ­," Papers on Strategic Interaction 2004-16, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
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