INTBUS 6 Lecture 11:
6 Oct 2020
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S9-ep: prospect theory in the wild: evidence from the field camerer. Expected utility: gambles that yield risky outcomes xi with probabilities pi are valued according to the sum of: pi*u(xi) where u(x) is the utility of outcome x. Disposition effect: because people dislike incurring losses more than they like incurring gains and are willing. Standard theory of supply of labour: predicts opposite to daily targeting theory drivers work hours that are most profitable, quitting early on bad days and making up the shortfall by working longer on good days. All three phenomena (status quo bias, default preference, endowment effect) are consistent with aversion to losses relative to reference point: racetrack betting: the favourite-longshot bias. End-of-day effect: bettors tend to shift bets toward longshots, away from favorites later in racing day when they have spent most of money because small longshot bet can generate large enough profit to cover earlier.
