Risk and Reward Preferences Under Time Pressure

Review of Finance doi:10.1093/rof/rft013

Posted: 29 Aug 2016 Last revised: 1 Mar 2017

See all articles by Anjali Nursimulu

Anjali Nursimulu

Ecole Polytechnique Fédérale de Lausanne

Peter Bossaerts

University of Melbourne - Department of Finance

Date Written: January 31, 2011

Abstract

Financial decision making under time pressure, though ubiquitous, is poorly understood; classical and behavioral finance are silent about the time required for a decision to be made. In an experiment, calibrating allowable decision times to 1, 3, and 5 s, we find that classical moment-based preferences reflect time-invariant sensitivity to expected reward, purchase impulsiveness under extreme time pressure, and decreased aversion to variance and increased aversion to skewness with decision time. These time varying sensitivities translate into increased probability distortions and decreased risk aversion for gains under prospect theory (PT). Strikingly, moment-based theory provides a better fit than PT.

JEL Classification: C91, D81

Suggested Citation

Nursimulu, Anjali and Bossaerts, Peter L., Risk and Reward Preferences Under Time Pressure (January 31, 2011). Review of Finance doi:10.1093/rof/rft013 . Available at SSRN: https://ssrn.com/abstract=2831304

Anjali Nursimulu (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

Station 5
BAC 0.01
1015 Lausanne, CH-1015
Switzerland

Peter L. Bossaerts

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Department of Finance
Carlton, Victoria 3010
Australia

HOME PAGE: http://bmmlab.org

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