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Risk as Feelings
, 2001
"... Virtually all current theories of choice under risk or uncertainty are cognitive and consequentialist. They assume that people assess the desirability and likelihood of possible outcomes of choice alternatives and integrate this information through some type of expectationbased calculus to arrive a ..."
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Cited by 276 (16 self)
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Virtually all current theories of choice under risk or uncertainty are cognitive and consequentialist. They assume that people assess the desirability and likelihood of possible outcomes of choice alternatives and integrate this information through some type of expectationbased calculus to arrive at a decision. The authors propose an alternative theoretical perspective, the riskasfeelings hypothesis, that highlights the role of affect experienced at the moment of decision making. Drawing on research from clinical, physiological, and other subfields of psychology, they show that emotional reactions to risky situations often diverge from cognitive assessments of those risks. When such divergence occurs, emotional reactions often drive behavior. The riskasfeelings hypothesis is shown to explain a wide range of phenomena that have resisted interpretation in cognitiveconsequentialist terms.
The Role of Aspiration Level in Risky Choice: A Comparison of Cumulative Prospect Theory and SP/A Theory
 Journal of Mathematical Psychology
, 1999
"... In recent years, descriptive models of risky choice have incorporated features that reflect the importance of particular outcome values in choice. Cumulative prospect theory (CPT) does this by inserting a reference point in the utility function. SP/A (securitypotential/aspiration) theory uses aspir ..."
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Cited by 64 (0 self)
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In recent years, descriptive models of risky choice have incorporated features that reflect the importance of particular outcome values in choice. Cumulative prospect theory (CPT) does this by inserting a reference point in the utility function. SP/A (securitypotential/aspiration) theory uses aspiration level as a second criterion in the choice process. Experiment 1 compares the ability of the CPT and SP/A models to account for the same withinsubjects data set and finds in favor of SP/A. Experiment 2 replicates the main finding of Experiment 1 in a betweensubjects design. The final discussion brackets the SP/A result by showing the impact on fit of both decreasing and increasing the number of free
Reconciling efficient markets with behavioral finance: The adaptive markets hypothesis
 Journal of Investment Consulting
, 2005
"... The battle between proponents of the Efficient Markets Hypothesis and champions of behavioral finance has never been more pitched, and little consensus exists as to which side is winning or the implications for investment management and consulting. In this article, I review the case for and against ..."
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Cited by 26 (6 self)
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The battle between proponents of the Efficient Markets Hypothesis and champions of behavioral finance has never been more pitched, and little consensus exists as to which side is winning or the implications for investment management and consulting. In this article, I review the case for and against the Efficient Markets Hypothesis and describe a new framework—the Adaptive Markets Hypothesis—in which the traditional models of modern financial economics can coexist alongside behavioral models in an intellectually consistent manner. Based on evolutionary principles, the Adaptive Markets Hypothesis implies that the degree of market efficiency is related to environmental factors characterizing market ecology such as the number of competitors in the market, the magnitude of profit opportunities available, and the adaptability of the market participants. Many of the examples that behavioralists cite as violations of rationality that are inconsistent with market efficiency—loss aversion, overconfidence, overreaction, mental accounting, and other behavioral biases—are, in fact, consistent with an evolutionary model of individuals adapting to a changing environment via simple heuristics. Despite the qualitative nature of this new paradigm, I show that the Adaptive Markets Hypothesis yields a number of surprisingly concrete applications for both investment managers and consultants.
Democracy and National Economic Performance: The Preference for Stability
 AMERICAN JOURNAL OF POLITICAL SCIENCE 45(JULY 2001):634657
, 2001
"... Democracies differ from autocracies in that democracies produce stable, not high or low, growth in national income. We analyze the likely risk/return preferences of voters, and hypothesize that the underlying causal mechanism generating democratic stability is that democracies more accurately reflec ..."
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Cited by 20 (1 self)
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Democracies differ from autocracies in that democracies produce stable, not high or low, growth in national income. We analyze the likely risk/return preferences of voters, and hypothesize that the underlying causal mechanism generating democratic stability is that democracies more accurately reflect the risk aversion of ordinary citizens. We test our hypothesis in several ways. First, we reexamine three studies of comparative economic voting and find that voters penalize incumbents when economic volatility increases. Second, we use extreme bounds regression analyses to show that democracies, compared to autocracies, are characterized by less volatility in economic growth rates. Third, we find that democratic stability does not appear to arise because democracies ameliorate the effects of social cleavages, another mechanism that might explain democratic stability. When growth and volatility are jointly examined, democracies reveal highly favorable economic results.
A DomainSpecific RiskTaking (DOSPERT) Scale Continued. Poster session presented at the annual meeting of the Society for Judgment and Decision Making
, 2003
"... This paper proposes a revised version of the original DomainSpecific RiskTaking (DOSPERT) scale developed by Weber, Blais, and Betz (2002) that is shorter and applicable to a broader range of ages, cultures, and educational levels. It also provides a French translation of the revised scale. Using ..."
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Cited by 17 (0 self)
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This paper proposes a revised version of the original DomainSpecific RiskTaking (DOSPERT) scale developed by Weber, Blais, and Betz (2002) that is shorter and applicable to a broader range of ages, cultures, and educational levels. It also provides a French translation of the revised scale. Using multilevel modeling, we investigated the riskreturn relationship between apparent risk taking and risk perception in 5 risk domains. The results replicate previously noted differences in reported degree of risk taking and risk perception at the mean level of analysis. The multilevel modeling shows, more interestingly, that withinparticipants variation in risk taking across the 5 content domains of the scale was about 7 times as large as betweenparticipants variation. We discuss the implications of our findings in terms of the personsituation debate related to risk attitude as a stable trait.
Introduction to special topic forum. Not so different after all: A crossdiscipline view of trust
 Academy of Management Review
, 1998
"... ..."
Gainsharing: A critical review and a future research agenda
 Journal of Management
, 1995
"... has been accepted for inclusion in CAHRS Working Paper Series by an authorized administrator of ..."
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Cited by 12 (1 self)
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has been accepted for inclusion in CAHRS Working Paper Series by an authorized administrator of
The Competitive Analysis of Risk Taking with Applications to Online Trading
, 1997
"... Competitive analysis is concerned with minimizing a relative measure of performance. When applied to financial trading strategies, competitive analysis leads to the development of strategies with minimum relative performance risk. This approach is too inflexible. Many investors are interested in ma ..."
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Cited by 5 (0 self)
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Competitive analysis is concerned with minimizing a relative measure of performance. When applied to financial trading strategies, competitive analysis leads to the development of strategies with minimum relative performance risk. This approach is too inflexible. Many investors are interested in managing their risk: they may be willing to increase their risk for some form of reward. They may also have some forecast of the future. In this paper, we extend competitive analysis to provide a framework in which investors can develop optimal trading strategies based on their risk tolerance and forecast. We first define notions of risk and reward that are smooth extensions of classical competitive analysis. We then illustrate our ideas using the skirental problem, and analyze a financial game using the riskreward framework.
Optimal BuyandHold Strategies for Financial Markets with Bounded Daily Returns
 In: Proc. of ACM Symp. on Theory of Computing (STOC
, 1999
"... A general solution is presented for any finite requestanswer game to derive its optimal competitive ratio and optimal randomized online algorithm against the oblivious adversary. The solution is based on game theory. We then apply the framework to the practical buyandhold trading problem and find ..."
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Cited by 3 (0 self)
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A general solution is presented for any finite requestanswer game to derive its optimal competitive ratio and optimal randomized online algorithm against the oblivious adversary. The solution is based on game theory. We then apply the framework to the practical buyandhold trading problem and find the exact optimal competitive ratio and an optimal randomized online algorithm. We also prove the uniqueness of the solution. 1 Introduction BenDavid et al. [BDBK + 94] formulated online problems as requestanswer games. In the requestanswer game, the online algorithm acts on each request before it serves the next one. Each such action generates a certain gain. In competitive analysis, an algorithm's performance is defined to be the ratio of the total gain of the best offline algorithm and that of the online algorithm that services the same sequence of requests over the worstcase inputs. See [BEY98, Hoc97, MR95] for surveys. This ratio is called the competitive ratio, which the ...