Economie et Sciences de la décision

Intervenant : Michele Tertilt
University of Mannheim

15 juin 2017

The wicked learning environment of regression toward the mean

Economie et Sciences de la décision

Intervenant : Emre Soyer

4 mai 2017 - T017 - De 13h30 à 14h30


The environment in which people experience regression toward the mean inhibits accurate learning and valid intuitions in many domains, including medicine, sports and management. In predictive tasks, regression effects are only salient in rare cases where cues take extreme values. People often experience regression away from the mean. Furthermore, errors from predictions that ignore regression effects correlate highly with those of optimal predictions. In diagnostic tasks, people fail to recognize regression effects because they are motivated to seek causal explanations. Causes are attributed to easily identifiable factors that make good stories. A simple heuristic can overcome these inferential difficulties. In predictive tasks, a “50/50 rule” that gives equal weight to the cue and the mean of the target variable approximates optimal performance. In diagnostic tasks, the same rule can be used to generate non-causal counterfactuals to challenge possible causal candidates.

Two dimensions of subjective uncertainty

Economie et Sciences de la décision

Intervenant : Craig Fox

27 avril 2017 - T004 - De 11h00 à 12h00

Hedge your bets: Risk reduction strategies on a real-world betting market

Economie et Sciences de la décision

Intervenant : Thomas Epper
University of St.Gallen

23 mars 2017 - T022 - De 11h00 à 12h00

Many people engage in gambling on actuarially unfair terms. For this reason,
it has long been argued that risk seeking is a prerequisite for participating in
gambling. We document a series of findings which are apparently inconsistent with
the notion of risk proneness. In particular, we find a strong disparity between
risk attitudes rationalizing market entrance and risk attitudes rationalizing betting
transactions. More specifically, we show that, while risk proneness is needed for
engaging in betting per se, bettors make use of risk reduction strategies once they
made the decision to bet. Importantly, these risk reduction strategies are systematic
and not due to random error. Our findings impose important restrictions on theories
of risky choice. A unifying characterization of preferences explaining both, market
participation and market transactions requires individuals to have a preference
for positive skewness (to select into the market) and an aversion towards spread
(to engage in risk reduction strategies). We argue that such risk preferences are
consistent with a wide array of behaviors outside of betting markets. When exploring
the strategies bettors choose on the market, we find that a considerable fraction
of bettors (about one-third of our sample) combines different bets into a portfolio
of bets. By doing so, they hedge the risk of the single bet and reduce the overall
risk exposure. Interestingly, the majority of subjects engaging in such strategies
follows a strategy best described as *native diversification*. Specifically, these
bettors split up equally the total betting amount across a number of events. We
analyze the characteristics of these hedges and establish a link to behavior on
financial markets.​

Aversion to risk of regret and preference for positively skewed risks

Economie et Sciences de la décision

Intervenant : Christian Gollier

16 mars 2017 - T017 - De 11h00 à 12h00


We assume that the ex-post utility of an agent facing a menu of lotteries depends upon the actual payoff together with its forgone best alternative, thereby allowing for the ex-post emotion of regret. An increase in the risk of regret is obtained when the actual payoff and its forgone best alternative are statistically less concordant in the sense of Tchen (1980). The aversion to any such risk of regret is thus equivalent to the supermodularity of the bivariate utility function. We show that more regret-risk-averse agents are more willing to choose the risky act in a one-risky-one-safe menu, in particular when the payoff of the risky choice is highly skewed. This is compatible with the "possibility effect" that is well documented in prospect theory. Symmetrically, we define the aversion to elation-risk that can prevail when the ex-post utility is alternatively sensitive to the forgone worst payoff. We show that elation-risk-seeking is compatible with the "certainty effect". We finally show that regret-risk-averse and elation-risk-seeking people behave as if they had rank-dependent utility preferences with an inverse-S shaped probability weighting function that reproduces estimates existing in the literature.


Département Economie et Sciences de la Décision

Campus HEC Paris
1, rue de la Libération
78351 Jouy-en-Josas cedex


Jeremy GHEZ

Economie - Sciences de la Décision

Voir le CV