Financial Engineering and Rationality: Experimental Evidence Based on the Monty Hall Problem
Financial 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.
|Date of creation:||Jul 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.depfid.unisi.it/
More information through EDIRC
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.:
- Brian D. Kluger & Steve B. Wyatt, 2004. "Are Judgment Errors Reflected in Market Prices and Allocations? Experimental Evidence Based on the Monty Hall Problem," Journal of Finance, American Finance Association, vol. 59(3), pages 969-998, 06.
- Ignacio Palacios-Huerta, 2003.
"Learning to Open Monty Hall's Doors,"
Springer, vol. 6(3), pages 235-251, November.
- Tilman Slembeck & Jean-Robert Tyran, 2002.
"Do Institutions Promote Rationality? An Experimental Study of the Three-Door Anomaly,"
University of St. Gallen Department of Economics working paper series 2002
2002-21, Department of Economics, University of St. Gallen.
- Slembeck, Tilman & Tyran, Jean-Robert, 2004. "Do institutions promote rationality?: An experimental study of the three-door anomaly," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 337-350, July.
- Page, Scott E., 1998. "Let's make a deal," Economics Letters, Elsevier, vol. 61(2), pages 175-180, November.
- Friedman, Daniel, 1998. "Monty Hall's Three Doors: Construction and Deconstruction of a Choice Anomaly," American Economic Review, American Economic Association, vol. 88(4), pages 933-46, September.
When requesting a correction, please mention this item's handle: RePEc:usi:labsit:007. 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: (Alessandro Innocenti)
If references are entirely missing, you can add them using this form.