Can People Learn About ‘Black Swans’? Experimental Evidence
61 Pages Posted: 13 Jun 2016 Last revised: 4 Feb 2018
Date Written: February 4, 2018
How do people cope with tail risk? In a lab experiment that removed informational and incentive confounds, subjects overwhelmingly behaved like Bayesian learners. The results of simulations further revealed that if one is to survive under tail risk, one needs to follow the Bayesian approach, as all boundedly rational alternatives fail. These findings support the Bayesian assumption commonly made in prior studies on tail risk and model uncertainty, and they also demonstrate the importance of optimal learning under tail risk.
Keywords: Tail Risk, Model Uncertainty, Bayesian Learning, Adaptive Learning
JEL Classification: C91, D83, D87, G02, G11
Suggested Citation: Suggested Citation