Financial Engineering and Rationality: Experimental Evidence Based on the Monty Hall Problem
AbstractFinancial engineering often involves redefining existing financial assets to create new financial products. This paper investigates whether financial engineering can alter the environment so that irrational agents can quickly learn to be rational. The specific environment we investigate is based on the Monty Hall problem, a well-studied choice anomaly. Our results show that, by the end of the experiment, the majority of subjects understand the Monty Hall anomaly. Average valuation of the experimental asset is very close to the expected value based on the true probabilities.
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Bibliographic InfoPaper provided by University of Siena in its series Labsi Experimental Economics Laboratory University of Siena with number 007.
Date of creation: Jul 2006
Date of revision:
experiment; behavioral finance;
Find related papers by JEL classification:
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-13 (All new papers)
- NEP-CBE-2007-01-13 (Cognitive & Behavioural Economics)
- NEP-EXP-2007-01-13 (Experimental Economics)
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University of St. Gallen Department of Economics working paper series 2002
2002-21, Department of Economics, University of St. Gallen.
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