Essays in Financial Economics

Essays in Financial Economics

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The third essay is an experimental study about people's time-inconsistent risk preferences. There is a substantial literature which studies time-inconsistent temporal preferences. We conducted an experiment to explore time-inconsistency in the other dimension of investment preferences, i.e., risk preferences. We had subjects play a multi-period betting game where they planned their betting decisions in advance and then played the game dynamically later to see if these decisions matched their plan. We found that subjects took more risk than planned in their initial bet and after a loss where this increase in risk-taking is associated with an increase in breakeven mental accounting. Our findings shed light on the conditions under which emotions exacerbate mental accounting and other behavioral biases.Our results are related to documented examples of temporal inconsistency related to lack of self-control with regard to addictive behaviors or impulsive behaviors (Gruber and Koszegi (2001), Read and van Leeuwen (1998)), procrastinationanbsp;...

Title:Essays in Financial Economics
Author: Zhijian Huang
Publisher:ProQuest - 2008

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