Hidden Skewness

21 Pages Posted: 6 Aug 2010 Last revised: 6 Jan 2011

See all articles by Ludwig Ensthaler

Ludwig Ensthaler

Humboldt University of Berlin - School of Business and Economics; German Institute for Economic Research (DIW Berlin)

Olga Nottmeyer

IZA Institute of Labor Economics; German Institute for Economic Research (DIW Berlin)

Georg Weizsacker

Humboldt University Berlin; DIW Berlin

Multiple version iconThere are 3 versions of this paper

Date Written: August 4, 2010

Abstract

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

Ensthaler, Ludwig and Nottmeyer, Olga and Weizsacker, Georg, Hidden Skewness (August 4, 2010). DIW Berlin Discussion Paper No. 1043. Available at SSRN: https://ssrn.com/abstract=1653430 or http://dx.doi.org/10.2139/ssrn.1653430

Ludwig Ensthaler

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Olga Nottmeyer

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Georg Weizsacker (Contact Author)

Humboldt University Berlin ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

DIW Berlin

Mohrenstr. 58
Berlin
Germany

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