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Anticipated regret and self-esteem in the Allais paradox

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  • Emmanuel PETIT (GREThA, CNRS, UMR 5113)
  • Anna TCHERKASSOF (LIP/PC2S)
  • Xavier GASSMANN (INRA)

Abstract

Our experiment aims at studying the impact of self-esteem on risk-prone choices in an Allais-type decision context using hypothetical money. We use an Internet protocol in order to reach a large heterogeneous student population sample. An anticipated regret explanation for the certainty effect implies that self-esteem is a crucial psychological variable in what concerns risky decision, but only when the choice is between a safe option and a risky option. Thus, in our experiment, we hypothesize that low self-esteem people will choose more frequently the safe option (rather than the risky-prone option) than high self-esteem people, whereas low self-esteem and high self-esteem individuals will show the same pattern of choices between two different risk-based options. Our data confirm our hypothesis. Regarding risky choices preferences, we also observe that females, non economists and older people significantly exhibit safer choice preferences than other participants. We find also that men and students in economics are more likely to conform to expected utility theory than females and other social science students respectively. We then discuss what these findings mean for economic regret theory, and suggest that a complete theory of decision-making under risk should introduce both situational and motivational explanations of individual behaviour.

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Bibliographic Info

Paper provided by Groupe de Recherche en Economie Théorique et Appliquée in its series Cahiers du GREThA with number 2011-25.

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Date of creation: 2011
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Handle: RePEc:grt:wpegrt:2011-25

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Keywords: Allais paradox; Risk; Regret aversion; Self-esteem; Internet experiment; Gender differences;

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  1. David E. Bell, 1983. "Risk Premiums for Decision Regret," Management Science, INFORMS, vol. 29(10), pages 1156-1166, October.
  2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  3. Robert H. Frank & Thomas Gilovich & Dennis T. Regan, 1993. "Does Studying Economics Inhibit Cooperation?," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 159-171, Spring.
  4. Bruno Frey & Stephan Meier, 2003. "Are political economists selfish and indoctrinated? Evidence from a natural experiment," Natural Field Experiments 00242, The Field Experiments Website.
  5. van de Ven, Niels & Zeelenberg, Marcel, 2011. "Regret aversion and the reluctance to exchange lottery tickets," Journal of Economic Psychology, Elsevier, vol. 32(1), pages 194-200, February.
  6. Conlisk, John, 1989. "Three Variants on the Allais Example," American Economic Review, American Economic Association, vol. 79(3), pages 392-407, June.
  7. Rachel Croson & Uri Gneezy, 2009. "Gender Differences in Preferences," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 448-74, June.
  8. Leland, Jonathan, 2010. "The hunt for a descriptive theory of choice under risk--A view from the road not taken," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(5), pages 568-577, October.
  9. V. Anderhub & R. Müller & C. Schmidt, 1998. "Design and Evaluation of an Economic Experiment via the Internet," SFB 373 Discussion Papers 1998,69, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  10. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-24, December.
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