WORKING PAPERS
Narrowly Rational (with MIAO Bin and ZHONG Songfa)
Paper.
Abstract: We examine whether choice behavior can be rationalized across settings. In an experiment, we compare portfolio allocations between two equiprobable Arrow securities in one setting, and between one safe asset and one risky asset, which delivers either a positive payoff or nothing, in another setting. We find that subjects are narrowly rational; that is, their choice data are internally consistent within each setting but inconsistent across settings. We observe that a diversification heuristic—the tendency to choose allocation at the midpoint of the given budget line—may underpin the observed inconsistency. We explore the underlying mechanisms in two additional experiments and show that the inconsistency across settings can be reduced by framing the two settings similarly but not by further decreasing the likelihood of the securities to a low level. Our study contributes to the literature on revealed preference analysis and heuristic-based decision-making.
Revealed Heterogeneity in Risk Preference (with MIAO Bin and ZHONG Songfa)
Paper.
Abstract: We propose a nonparametric revealed preference test to identify heterogeneity in risk preference. Our method is simple and applicable to choice environments with revealed preference features. We further develop two measures of preference heterogeneity at both the individual and group levels and apply them to examine the experimental data of Choi et al. (2014), whereby subjects in a representative sample make portfolio choices under budget constraints. We find that preference heterogeneity is linked to levels of individual rationality, and males exhibit greater heterogeneity than females. Our study supports revealed preference analysis as a powerful tool in understanding economic behavior beyond individual rationality.
Paper.
Abstract: We examine whether choice behavior can be rationalized across settings. In an experiment, we compare portfolio allocations between two equiprobable Arrow securities in one setting, and between one safe asset and one risky asset, which delivers either a positive payoff or nothing, in another setting. We find that subjects are narrowly rational; that is, their choice data are internally consistent within each setting but inconsistent across settings. We observe that a diversification heuristic—the tendency to choose allocation at the midpoint of the given budget line—may underpin the observed inconsistency. We explore the underlying mechanisms in two additional experiments and show that the inconsistency across settings can be reduced by framing the two settings similarly but not by further decreasing the likelihood of the securities to a low level. Our study contributes to the literature on revealed preference analysis and heuristic-based decision-making.
Revealed Heterogeneity in Risk Preference (with MIAO Bin and ZHONG Songfa)
Paper.
Abstract: We propose a nonparametric revealed preference test to identify heterogeneity in risk preference. Our method is simple and applicable to choice environments with revealed preference features. We further develop two measures of preference heterogeneity at both the individual and group levels and apply them to examine the experimental data of Choi et al. (2014), whereby subjects in a representative sample make portfolio choices under budget constraints. We find that preference heterogeneity is linked to levels of individual rationality, and males exhibit greater heterogeneity than females. Our study supports revealed preference analysis as a powerful tool in understanding economic behavior beyond individual rationality.
WORKS IN PROGRESS
Putting Longshot Preferences to Work in the Field (with CHEN Yiting, MIAO Bin and ZHONG Songfa)
Measuring Rationality under Mental Illness (with SHEN Qiang and ZHONG Songfa)
Measuring Rationality under Mental Illness (with SHEN Qiang and ZHONG Songfa)