Satisficing in Financial Decision Making A Theoretical and Experimental Attempt to Explore Bounded Rationality
In this paper, we apply the bounded rationality approach to an investment situation. In a simple setting where an investor decides between a riskless bond and a risky asset, we distinguish three aspiration levels: a lowest threshold which one wants to guarantee, the aspiration level given by investing all risk-free, and an even higher return level representing a real success. The ranges for such aspirations are naturally determined by the parameters. These three aspirations allow us to classify investors as actual or only potential satisficers, as well as risk shy or more open to risk. In the experiment, participants are first asked for their lowest and highest aspiration before investing. Thus, we can test whether they behave as predicted by their aspiration type. By presupposing specific cardinal utility functions, we also compare the bounded rationality approach to the rational choice-approach.
|Date of creation:||Aug 2005|
|Date of revision:|
|Contact details of provider:|| Postal: Kahlaische Strasse 10, D-07745 Jena|
Phone: +49-3641-68 65
Fax: +49-3641-68 69 90
Web page: http://www.econ.mpg.de/
More information through EDIRC
|Order Information:|| Web: http://www.econ.mpg.de/english/research/ESI/discuss.php Email: |
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.:
- David Hirshleifer, 2001.
"Investor Psychology and Asset Pricing,"
Journal of Finance,
American Finance Association, vol. 56(4), pages 1533-1597, 08.
- Tietz, Reinhard, 1992. "Semi-normative theories based on bounded rationality," Journal of Economic Psychology, Elsevier, vol. 13(2), pages 297-314, June.
- Dennis Dittrich & Werner Güth & Boris Maciejovsky, 2001.
"Overconfidence in Investment Decisions: An Experimental Approach,"
CESifo Working Paper Series
626, CESifo Group Munich.
- Dennis Dittrich & Werner Guth & Boris Maciejovsky, 2005. "Overconfidence in investment decisions: An experimental approach," The European Journal of Finance, Taylor & Francis Journals, vol. 11(6), pages 471-491.
- Dennis Dittrich & Werner Güth & Boris Maciejovsky, . "Overconfidence in Investment Decisions: An Experimental Approach," Papers on Strategic Interaction 2001-03, Max Planck Institute of Economics, Strategic Interaction Group.
- Barberis, Nicholas & Thaler, Richard, 2003.
"A survey of behavioral finance,"
Handbook of the Economics of Finance,
in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 18, pages 1053-1128
- Selten, Reinhard, .
"Features of Experimentally Observed Bounded Rationality,"
Discussion Paper Serie B
421, University of Bonn, Germany, revised Nov 1997.
- Selten, Reinhard, 1998. "Features of experimentally observed bounded rationality," European Economic Review, Elsevier, vol. 42(3-5), pages 413-436, May.
When requesting a correction, please mention this item's handle: RePEc:esi:discus:2005-23. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karin Richter)
If references are entirely missing, you can add them using this form.