EconStor >
Federal Reserve Bank of Boston >
Working Paper Series, Federal Reserve Bank of Boston >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/55564
  

Full metadata record

DC FieldValueLanguage
dc.contributor.authorBracha, Anaten_US
dc.contributor.authorBrown, Donald J.en_US
dc.date.accessioned2011-01-10en_US
dc.date.accessioned2012-02-23T07:59:59Z-
dc.date.available2012-02-23T07:59:59Z-
dc.date.issued2010en_US
dc.identifier.urihttp://hdl.handle.net/10419/55564-
dc.description.abstractOptimism bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk, such as expected utility theory and prospect theory. Hence, to explain the evidence suggesting that agents are optimistically biased, we propose an alternative model of risky choice, affective decision making, where decision weights - which we label affective or perceived risk - are endogenized. Affective decision making (ADM) is a strategic model of choice under risk where we posit two cognitive processes - the rational and the emotional process. The two processes interact in a simultaneous-move intrapersonal potential game, and observed choice is the result of a pure Nash equilibrium strategy in this game. We show that regular ADM potential games have an odd number of locally unique pure strategy Nash equilibria, and demonstrate this finding for ADM in insurance markets. We prove that ADM potential games are refutable by axiomatizing the ADM potential maximizers.en_US
dc.language.isoengen_US
dc.publisherFederal Reserve Bank of Boston Boston, MAen_US
dc.relation.ispartofseriesWorking paper series // Federal Reserve Bank of Boston 10-16en_US
dc.subject.jelD01en_US
dc.subject.jelD81en_US
dc.subject.jelG22en_US
dc.subject.ddc330en_US
dc.subject.stwEntscheidungstheorieen_US
dc.subject.stwEntscheidung bei Risikoen_US
dc.subject.stwErwartungsnutzenen_US
dc.subject.stwTheorieen_US
dc.titleAffective decision making: A theory of optimism biasen_US
dc.typeWorking Paperen_US
dc.identifier.ppn642984131en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:Working Paper Series, Federal Reserve Bank of Boston

Files in This Item:
File Description SizeFormat
642984131.pdf408.39 kBAdobe PDF
No. of Downloads: Counter Stats
Show simple item record
Download bibliographical data as: BibTeX

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.