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The Relationship Between Risk Attitudes and Heuristics in Search Tasks: A Laboratory Experiment

  • Schunk, Daniel

    ()

    (University of Zürich Institute for Empirical Research in Economics)

  • Winter, Joachim

    ()

    (Mannheim Research Institute for the Economics of Aging (MEA))

The existing evidence from laboratory experiments suggests that relatively simple heuristics describe observed search behavior better than the optimal stopping rule derived under risk neutrality. Such behavior could be generated by two entirely different classes of decision rules: (i) rules that are optimal conditional on utility functions that depart from risk neutrality or (ii) heuristics that derive from limited cognitive processing capacities and satisfycing. In this paper, we develop and test search models that depart from the standard assumption of risk neutrality in order to distinguish these two possibilities. In our experiment, we present subjects not only with a standard search task, but also with a series of lottery tasks that serve to elicit the shape of their utility functions. We do not find a relationship between behavior in the search task and measures of risk aversion. Our data suggest, however, that loss aversion is important for explaining search behavior.

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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 04-23.

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Length: 35 pages
Date of creation: 15 Jun 2004
Date of revision:
Handle: RePEc:xrs:sfbmaa:04-23
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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