Play it Again! A Natural Experiment on Definitivity Avoidance
42 Pages Posted: 9 Aug 2019 Last revised: 23 Sep 2019
Date Written: September 19, 2019
Behavioral biases affect a large number of human decisions, many of which have relevant welfare effects. We identify a bias that we denote as "reversibility bias" and explore how the introduction of explicit exposure mechanisms can contribute to attenuate it. To do this, we exploit a unique natural experiment - the introduction of a decision review system represented by player challenges and the associated Hawk-Eye technology in professional tennis. This experiment allows us to identify the bias, by illustrating that if such a bias exists, the challenge rule should reduce the number of calls that postpone the assignment of a point. Our findings may have significant policy implications providing a conceptual framework for the design of institutions to alleviate the welfare costs associated with reversibility bias in different contexts, such as court rulings, human resource management and debt roll-over decisions.
Keywords: Prospect Theory; Natural experiment; Uncertainty
JEL Classification: D81, D91, C93
Suggested Citation: Suggested Citation