|M.Sc Student||Dagan Aviad|
|Subject||Economists and Decision Making|
|Department||Department of Industrial Engineering and Management||Supervisor||Professor Doron Kliger|
The objective of
the current study was to examine whether and how economists differ from others
on two factors that are familiar to them from their economics studies, such as
their approach to risk and their time preferences. The first experiment
("approach to risk") focused on decision-making under conditions of
In this experiment participants were asked to complete a questionnaire containing a graph describing the performance of a random share over the past 72 weeks. Based on this graph, participants were asked to choose between certain alternatives that ensured receipt of a relatively low sum and uncertain alternatives that included both the possibility of receiving a high sum and the possibility of not receiving anything.
included different scenarios for share performance - price increases, decreases
and mixed performance. The participants were asked to indicate the lowest
certain amount they would be willing to receive in order to remain with the
certain alternative and not begin gambling on the share's performance
(Threshold X value). In addition, they were asked to assess the chances that
the scenarios would be realized. Based on the results, I attempted to determine
whether one group was more risk aversive than the other and whether one group
was more conservative than the other.
The results indicate that economists are more pessimistic and more risk-averse in betting on price increases, while on the other hand they are more optimistic and less risk-averse in betting on a wide range of performance (ups or downs). In betting on price declines there were no differences between the groups.
The second experiment dealt with "Time preference". In this experiment, participants were given four questions asking them to choose between receiving certain sums of money at specified time points or receiving higher sums of money at more distant time points. The first stage of the data analysis entailed comparing the economists' discount rates with those of the non-economists for each of the above cases. In this initial analysis, I did not find any differences in discount rate or time preference between the two groups, either for low sums or for high sums. Moreover, no differences emerged between the groups for average discount rates between the low and high sums. Both groups were found to prefer the present, though I was unable to find any differences in the level of this preference.
The second stage entailed examining each group's degree of consistency (or inconsistency) in making decisions over time, as well as determining whether each group exhibited a present bias (hyperbolic time preference). The results show that economists have a present bias only in low amounts and non-economists have the bias also in the high amounts. After all the relevant tests and comparisons, practically no differences emerged between the two groups. the only difference between the two groups emerged in the present bias at the high sums.