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

  • Selima Mansour
  • Elyès Jouini

    ()

  • Clotilde Napp

    ()

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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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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  1. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  2. Philippe Weil, 1989. "The Equity Premium Puzzle and the Riskfree Rate Puzzle," NBER Working Papers 2829, National Bureau of Economic Research, Inc.
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  8. Giordani, Paolo & Soderlind, Paul, 2006. "Is there evidence of pessimism and doubt in subjective distributions? Implications for the equity premium puzzle," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 1027-1043, June.
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