Is it All Connected? A Testing Ground for Unified Theories of Behavioral Economics Phenomena

50 Pages Posted: 14 Aug 2015

See all articles by Mark Dean

Mark Dean

New York University (NYU) - Department of Economics; Brown University - Department of Economics

Pietro Ortoleva

Princeton University - Department of Economics

Date Written: August 13, 2015

Abstract

We estimate 11 well-studied behavioral phenomena in a group of 190 laboratory subjects (short-term discount rates, small stakes risk aversion, present bias, loss aversion, the endowment effect, aversion to ambiguity and compound lotteries, the common ratio and common consequence effects and sender/receiver behavior in trust games). We study the joint distribution of these behaviors and compare it to the predictions of existing models as a step in the development of a parsimonious, general model of economic choice. We find strong correlations between loss aversion and the endowment effect, and between probability weighting (as measured by the common ratio and common consequence effects) and risk aversion, in line with Cumulative Prospect Theory (CPT). We also find risk aversion to be related to ambiguity aversion, compound lottery aversion and discounting, consistent with the curvature of the utility function being an important determinant of all three behaviors. However, we do not find evidence that probability weighting in the risk domain is related to ambiguity and compound lottery aversion or present bias (as implied by recent extensions to CPT). Behavior in the trust game is unrelated to attitudes to risk or uncertainty. We find little relation between intelligence or personality measures and economic behavior, although we do find overconfidence to be negatively related to many behaviors (particularly ambiguity aversion) and women to be much more loss averse than men.

Keywords: isk Aversion, Present Bias, Ambiguity Aversion, Allais Paradox, En- dowment Effect, Loss Aversion, Trust Game

JEL Classification: C91, D03, D81

Suggested Citation

Dean, Mark R. W. and Dean, Mark R. W. and Ortoleva, Pietro, Is it All Connected? A Testing Ground for Unified Theories of Behavioral Economics Phenomena (August 13, 2015). Available at SSRN: https://ssrn.com/abstract=2643355 or http://dx.doi.org/10.2139/ssrn.2643355

Mark R. W. Dean

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

HOME PAGE: http://www.econ.brown.edu/fac/Mark_Dean/

Pietro Ortoleva (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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