21 Pages Posted: 6 Aug 2010 Last revised: 6 Jan 2011
Date Written: August 4, 2010
We provide laboratory evidence that people neglect skewness resulting from compound shocks. In an investment experiment involving an asset with random geometric price growth, we determine bounds on the participants' subjective medians of the asset's final price. The evidence shows a strong bias in expectations, which is irrespective to risk preferences and fairly robust to feedback.
Keywords: skewness, belief biases, binomial tree
JEL Classification: C91, D03
Suggested Citation: Suggested Citation