Gain attraction in the presence of social interactions

2017 ◽  
Vol 9 (2) ◽  
pp. 105-127 ◽  
Author(s):  
Rattaphon Wuthisatian ◽  
Federico Guerrero ◽  
James Sundali
Keyword(s):  
Theoretical Model ◽  
Risk Aversion ◽  
Social Interactions ◽  
Prospect Theory ◽  
Value Function ◽  
Peer Group ◽  
Reference Points ◽  
Risk Attitudes ◽  
Content Type ◽  
Social Settings

Purpose The purpose of this paper is to suggest that a fundamental cause of market booms and busts is that investor risk attitudes change during market booms. Specifically, the authors propose that an investor’s risk aversion falls as (s)he attempts to “keep up with the Joneses.” This paper studies changing risk attitudes induced by social interactions, and shows that risk-seeking behavior that is initially successful may induce copycat behavior and lead individuals in the same peer group to reduce their degree of risk aversion to attempt to obtain similar rewards, a phenomenon we call “Gain attraction in the presence of social interactions.” Design/methodology/approach The authors propose a new theoretical model that incorporates the social interaction term into the value function of prospect theory. The modified value function empowers the standard prospect theory by introducing the idea that people often compare themselves to others and then compare their gains to the gains of others. The model predicts that, if people exhibit some degree of envy, they will treat the observed utility achieved by others as destination points and will reposition themselves to the new reference points, and at that point their willingness to accept risk dramatically increases. Findings The theoretical model is tested empirically against experimental data and survey data. Consistent with the theoretical prediction, the experimental results suggest that, after subjects observed the behavior of the leading investor in the controlled laboratory condition, there was a significant increase in risk-taking behavior. The survey results further confirm that envy is an emotional force behind the dissatisfaction and disappointment among investors when they miss available opportunities that others were able to take advantage of. Originality/value This study provides evidence that investment decisions are not made in a social vacuum by isolated individuals, but rather in social settings in which individuals are influenced by the actions and outcomes of their peers. The study also opens up a new research avenue that the reduction in risk aversion induced by peer effects may be an important element explaining how greed is transmitted across the economy during times of financial boom, thus helping to fuel the flames of financial crises.

Dynamic multi-attribute decision-making method with three-parameter interval grey number based on the prospect theory

2018 ◽  
Vol 8 (4) ◽  
pp. 424-435 ◽  
Author(s):  
Ye Li ◽  
Dongxing Zhang
Keyword(s):  
Decision Making ◽  
Prospect Theory ◽  
Value Function ◽  
Reference Points ◽  
Content Type ◽  
Time Points ◽  
Decision Method ◽  
Multi Attribute Decision Making ◽  
Parameter Interval ◽  
Grey Number

Purpose The purpose of this paper is to propose a dynamic multi-attribute decision-making method based on the prospect theory for dealing with the dynamic multi-attribute decision-making problem with three-parameter interval grey number. Design/methodology/approach First, the kernel and comparison rule of three-parameter interval grey numbers are defined, which are the basis of collecting and sorting grey numbers. Next, the prospect value function is determined in view of the decision-making information with different time points as the reference points. Then, an optimal model for solving the attribute weight and time weight is constructed based on the grey entropy principle. Findings The paper provides a dynamic grey interrelation decision method based on the prospect theory with three-parameter interval grey number, and the example analysis shows that the method proposed in this paper has validity and rationality. Research limitations/implications If we have a better understanding of the weights of different reference points, it is possible to receive a more reasonable expression for the comprehensive prospect utility value function. Practical implications The paper provides a grey interrelation decision method based on the prospect theory, which can help the decision maker deal with the dynamic multi-attribute decision-making problems under the uncertain environment. Originality/value The paper proposes the kernel and ranking method of three-parameter interval grey number, and uses different time points as the reference points to define the prospect value function. Furthermore, this paper structures a dynamic grey interrelation decision method with three-parameter interval grey number based on the prospect theory.

Rank-dependent preferences, social network and crop insurance uptake: field experimental evidence from rural China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ruojin Zhang ◽  
Dan Fan ◽  
Gene Lai ◽  
Junqian Wu ◽  
Jungong Li
Keyword(s):  
Risk Aversion ◽  
Likelihood Function ◽  
Rural China ◽  
Crop Insurance ◽  
Participation Rate ◽  
Southwestern China ◽  
Risk Attitudes ◽  
Agricultural Insurance ◽  
Content Type ◽  
Rice Farmers

PurposeAgricultural insurance has become increasingly important to farmers' livelihood and production in rural China. Yet despite the enormous governmental subsidizing efforts, the insurance participation rate remains below expectations. This study revisits the linkage between farmers' risk attitudes and crop insurance utilization by providing a cross-cutting perspective such that the role of risk aversion is re-scrutinized in Chinese “kindred” village economies.Design/methodology/approachThe authors administrated a lottery-based multiple price list (MPL) experiment by recruiting rice farmers from 12 villages in Sichuan province in southwestern China. Using the experimental data, farmers' risk attitudes are assessed and coefficients of risk aversion are estimated within the rank-dependent expected utility (RDEU) framework by maximizing a structured likelihood function.FindingsThis study provides substantiating evidence that rice farmers in southwestern China exhibit relatively high risk aversion. The authors also provide suggestive evidence of the positive relationship between farmers' risk aversion and crop insurance utilization. In addition, findings reveal that kinship network has a negative effect on crop insurance utilization, such that farmers who are connected in higher degree of kinship network have lower likelihood of crop insurance utilization, which suggests that kinship network may be substitute for formal crop insurance. Result also demonstrates that the incentive effect of risk aversion on farmers' crop insurance participation manifests differently depending on the degree of kinship network in rural China.Originality/valueThis study provides a cross-cutting perspective by scrutinizing the effects of farmers' risk attitudes and kinship network on crop insurance participation in rural China, which has received relatively little attention in the literature. Conclusions on the effects of risk aversion on crop insurance participation have been mixed in previous studies. In addition, to the best of our knowledge, little has been done to explicitly examine the influence of social proximity and networks on farmers' insurance uptake. This study attempts to fill both gaps. This study provides new insights which might shed lights on the understanding of farmers' crop insurance participation in rural China.

Reference-Dependent Risk Attitudes

2007 ◽  
Vol 97 (4) ◽  
pp. 1047-1073 ◽  
Author(s):  
Botond Kőszegi ◽  
Matthew Rabin
Keyword(s):  
Risk Aversion ◽  
Prospect Theory ◽  
Large Scale ◽  
Risk Attitudes ◽  
Additional Risk ◽  
First Order ◽  
Prior Expectation ◽  
Probabilistic Beliefs ◽  
Gain Loss ◽  
Delayed Consequences

We use Kőszegi and Rabin's (2006) model of reference-dependent utility, and an extension of it that applies to decisions with delayed consequences, to study preferences over monetary risk. Because our theory equates the reference point with recent probabilistic beliefs about outcomes, it predicts specific ways in which the environment influences attitudes toward modest-scale risk. It replicates “classical” prospect theory—including the prediction of distaste for insuring losses—when exposure to risk is a surprise, but implies first-order risk aversion when a risk, and the possibility of insuring it, are anticipated. A prior expectation to take on risk decreases aversion to both the anticipated and additional risk. For large-scale risk, the model allows for standard “consumption utility” to dominate reference-dependent “gain-loss utility,” generating nearly identical risk aversion across situations. (JEL D81)

scholarly journals Grey Situation Group Decision-Making Method Based on Prospect Theory

2014 ◽  
Vol 2014 ◽  
pp. 1-7 ◽  
Author(s):  
Na Zhang ◽  
Zhigeng Fang ◽  
Xiaqing Liu
Keyword(s):  
Decision Making ◽  
Prospect Theory ◽  
Group Decision Making ◽  
Value Function ◽  
Group Decision ◽  
Reference Points ◽  
Final Decision ◽  
Topsis Method ◽  
Psychological Behavior ◽  
Ideal Situation

This paper puts forward a grey situation group decision-making method on the basis of prospect theory, in view of the grey situation group decision-making problems that decisions are often made by multiple decision experts and those experts have risk preferences. The method takes the positive and negative ideal situation distance as reference points, defines positive and negative prospect value function, and introduces decision experts’ risk preference into grey situation decision-making to make the final decision be more in line with decision experts’ psychological behavior. Based on TOPSIS method, this paper determines the weight of each decision expert, sets up comprehensive prospect value matrix for decision experts’ evaluation, and finally determines the optimal situation. At last, this paper verifies the effectiveness and feasibility of the method by means of a specific example.

Exploring the relationship between investment choices, cognitive abilities risk attitudes and financial literacy

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Mushafiq ◽  
Shamsa Khalid ◽  
Muhammad Khalid Sohail ◽  
Tayyebah Sehar
Keyword(s):  
Risk Aversion ◽  
Financial Literacy ◽  
Cognitive Abilities ◽  
Risk Attitudes ◽  
Positive Contribution ◽  
Content Type ◽  
Risky Investment ◽  
Investment Intentions ◽  
The Relationship ◽  
Investment Choices

PurposeThe main purpose of this study is to investigate the investment choices' relationship with cognitive abilities, risk aversion, risky investment intentions, subjective financial literacy and objective financial literacy.Design/methodology/approachTo examine the relationship, two investment choices were given to 256 subjects from Pakistan. Questionnaire had total 20 questions for measuring five variables. To review this nexus, discriminant analysis was used as to explore the depth of the nexus that is the ability of the variables to predict the investment choices.FindingsThis study establishes the findings that Investment choices are guided by risk aversion, risky investment intentions, financial literacy (subjective and objective) and cognitive abilities. The risk aversion has negative relation to investment choices and other variables depict positive relationship to with investment choices.Practical implicationsThis study provides a new and useful understanding into the existing literature on investment choices. The results are significant as the cognitive abilities show a positive contribution to the investment choices. This is point of significance as the portfolio managers and advisors would get help in regards of advising investments as they are aware what factors impact the investment choices.Originality/valueThis study is novel in its nature to evaluate investment choices using the cognitive ability alongside risk attitudes and financial literacy.

Can prospect theory explain the disposition effect? An analysis based on value function

2018 ◽  
Vol 8 (3) ◽  
pp. 235-255
Author(s):  
Xiaotian Liu ◽  
Huayue Zhang ◽  
Shengmin Zhao
Keyword(s):  
Prospect Theory ◽  
Portfolio Choice ◽  
Crucial Role ◽  
Value Function ◽  
Disposition Effect ◽  
Dynamic Programming Method ◽  
Prediction Ability ◽  
Content Type ◽  
The Impact ◽  
The Value Function

Purpose The prospect theory is potentially an essential ingredient in modeling the disposition effect. However, many scholars have tried to explain the disposition effect with the help of prospect theory and they came to opposite conclusions. The purpose of this paper is to examine the impact of value function of the prospect theory on predicting the disposition effect. Design/methodology/approach Lagrange multiplier optimization and dynamic programming method are used to solve the representative investor’s optimal portfolio choice problem. Furthermore, numerical simulation is used to compare the prediction ability of different types of value function. Findings The authors support that the value function has a crucial role in predicting the disposition effect with prospect theory, i.e. the curvature and boundedness of the value function may influence the performance of applying the prospect theory in the disposition effect. They conclude that a piecewise negative exponential value function can predict the disposition effect, while others like the piecewise power value function may not. Originality/value Extant literature about modeling the disposition effect with the prospect theory mostly focus on the time when gain-loss utility occurs or the selection of reference point. This paper based on the value function properties provides a new perspective in analyzing the crucial role that value function has in predicting financial market anomalies.

scholarly journals Relationship between Social Skills and Happiness: Differences by Gender

2021 ◽  
Vol 18 (15) ◽  
pp. 7929
Author(s):  
Carlos Salavera ◽  
Pablo Usán
Keyword(s):  
Gender Differences ◽  
Social Skills ◽  
Social Interactions ◽  
Primary Education ◽  
Subjective Happiness ◽  
School Students ◽  
Related Factors ◽  
Subjective Happiness Scale ◽  
Social Settings ◽  
The Relationship

This study examines the relationship between social skills and happiness in 1st-year Teaching School students, as well as possible gender differences. The sample comprised 243 Teaching School students (Primary Education) in Zaragoza, including 110 men (45.27%) and 133 women (54.73%), aged 18–25 (average age 20.23 years; s.d. = 1.586). In order to analyse the relationship between social skills and subjective happiness, the Scale of Social Skills and Subjective Happiness Scale were used. While men scored higher in all social skills-related factors, women scored higher in all factors related to happiness. The study shows that factors such as self-expression in social settings and the ability to say no and cut off social interactions have a direct and significant effect on happiness among men, while self-expression in social settings and the ability to express anger led to a higher perception of happiness among women. Similarly, situations such as asking for and defending rights have an indirect and significant effect in men, reducing their levels of happiness. In the case of women, no social skills factors were found that led to lower happiness. It may be concluded that significant gender differences exist, although broader and lateral studies are needed in order to examine the relationship between gender identities, social skills and subjective happiness more in depth, and thus, understand the effect of these constructs in the development of personality.

Farm wages and public works

2015 ◽  
Vol 8 (1) ◽  
pp. 19-72 ◽  
Author(s):  
Kanika Mahajan
Keyword(s):  
Theoretical Model ◽  
Wage Rate ◽  
Fixed Effects ◽  
Positive Impact ◽  
Wage Growth ◽  
State Level ◽  
Random Allocation ◽  
Farm Sector ◽  
Content Type ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of National Rural Employment Guarantee Scheme (NREGS) on farm sector wage rate. This identification strategy rests on the assumption that all districts across India would have had similar wage trends in the absence of the program. The author argues that this assumption may not be true due to non-random allocation of districts to the program’s three phases across states and different economic growth paths of the states post the implementation of NREGS. Design/methodology/approach – To control for overall macroeconomic trends, the author allows for state-level time fixed effects to capture the differences in growth trajectories across districts due to changing economic landscape in the parent-state over time. The author also estimates the expected farm sector wage growth due to the increased public work employment provision using a theoretical model. Findings – The results, contrary to the existing studies, do not find support for a significantly positive impact of NREGS treatment on private cultivation wage rate. The theoretical model also shows that an increase in public employment work days explains very little of the total growth in cultivation wage post 2004. Originality/value – This paper looks specifically at farm sector wage growth and the possible impact of NREGS on it, accounting for state specific factors in shaping farm wages. Theoretical estimates are presented to overcome econometric limitations.

Intention to adopt mobile payment in physical stores

2019 ◽  
Vol 33 (2) ◽  
pp. 285-308 ◽  
Author(s):  
Yonathan Dri Handarkho ◽  
Yulius Harjoseputro
Keyword(s):  
Theoretical Model ◽  
Technology Acceptance ◽  
Switching Behavior ◽  
Mobile Payment ◽  
Herd Behavior ◽  
User Intention ◽  
Consumer Innovativeness ◽  
Content Type ◽  
Use Of Technology ◽  
Acceptance Model

Purpose The purpose of this paper is to develop a theoretical model based on Push–Pull–Mooring (PPM) framework consisting of direct, indirect and moderating effects, derived from technology acceptance model, unified theory of acceptance and use of technology and other extended theory, to address the main factor influencing an individual in adopting mobile payment (MP) in physical stores. The research, therefore, utilized individual switching behavior as an underpinning to explain MP adoption in an offline context. Design/methodology/approach The theoretical model was tested by collecting data from 459 respondents in Indonesia through online self-administered questionnaires. Findings The finding indicated consumer innovativeness has the most influential direct effect on MP adoption, followed by deal proneness, perceived convenience and perceived herd behavior. Meanwhile, perceived enjoyment and subjective norms were found to have an indirect effect on the adaptation of MP through mediator convenience. Furthermore, age, gender, occupation and income did not have any moderating effect for all the direct influence of MP adoption. Originality/value Previous literature only focused on direct intention. However, this study observed the adoption of MP in a physical store by involving the switching behavior. It specifically puts concern and objective as the factors that influence user intention to switch from their old payment system to the MP system in bricks and mortar store using PPM framework.

Disposition effect at the market level: evidence from Indian stock market

2019 ◽  
Vol 12 (2) ◽  
pp. 69-82
Author(s):  
Sravani Bharandev ◽  
Sapar Narayan Rao
Keyword(s):  
Trading Volume ◽  
Stock Exchange ◽  
Reference Points ◽  
Disposition Effect ◽  
Content Type ◽  
Ex Post ◽  
Abnormal Trading Volume ◽  
The Difference ◽  
Trading Volumes ◽  
Indian Stock Market

Purpose The purpose of this paper is to test the disposition effect at market level and propose an appropriate reference point for testing disposition at market level. Design/methodology/approach This is an empirical study conducted on 500 index stocks of NSE500 (National Stock Exchange). Winning and losing days for each stock are calculated using 52-week high and low prices as reference points. To test disposition effect, abnormal trading volumes of stocks are regressed on their percentage of winning (losing) days. Further using ANOVA, the difference between mean of percentage of winning (losing) days of high abnormal trading volume deciles and low abnormal trading volume deciles is tested. Findings Results show that a stock’s abnormal trading volume is positively influenced by the percentage of winning days whereas percentage of losing days show no such effect. Findings are consistent even after controlling for volatility and liquidity. ANOVA results show the presence of high percentage of winning days in higher deciles of abnormal trading volumes and no such pattern in case of losing days confirms the presence of disposition effect. Further an ex post analysis indicates that disposition prone investors accumulate losses. Originality/value This is the first study, which proposes the use of 52-week high and low prices as reference points to test the market-level disposition effect. Findings of this study enhance the limited literature available on disposition effect in emerging markets by providing evidence from Indian stock markets.

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