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dc.contributor.authorHarbaugh, Richmonden
dc.contributor.editorClaremont Institute for Economic Policy Studiesen
dc.date.accessioned2010-05-14T11:06:40Z-
dc.date.available2010-05-14T11:06:40Z-
dc.date.issued2002-
dc.identifier.urihttp://hdl.handle.net/10419/31456-
dc.description.abstractWhen a risky decision involves both skill and chance, success or failure is a signal of the decision maker's skill. Adopting standard models from the career concerns literature, we show that a rational desire to avoid looking unskilled may help explain several anomalies associated with prospect theory, including probability weighting, loss aversion, and framing. Prospect theory's four-fold pattern of probability weighting predicts that decision makers favor long-shots, avoid near sure-things, buy insurance against unlikely losses, and take risky chances to win back large losses. We find that this pattern emerges because winning a gamble with a low probability of success is a strong signal of skill, while losing a gamble with a high probability of success is a strong signal of incompetence. Regarding loss aversion, a fear of looking inept provides an alternative explanation for the puzzle of why people are so risk averse for small gambles. Such behavior can arise because losing any gamble, even a friendly bet with little or no money at stake, reflects poorly on the decision maker's skill. Finally, we find that framing affects choices because different formulations of a question provide different information about how a decision maker's actions will be interpreted. While the theoretical predictions of skill signaling closely parallel those of prospect theory, they differ in some cases, allowing for tests between the theories. The theoretical predictions are also closely related to, but distinguishable from, those of regret theory.en
dc.language.isoengen
dc.publisher|aClaremont McKenna College, Department of Economics |cClaremont, CAen
dc.relation.ispartofseries|aClaremont Colleges Working Papers |x2002-03en
dc.subject.jelD81en
dc.subject.jelD82en
dc.subject.jelC92en
dc.subject.jelG11en
dc.subject.ddc330en
dc.subject.keywordProspect theoryen
dc.subject.keywordregret theoryen
dc.subject.keywordcareer concernsen
dc.subject.keywordprobability weightingen
dc.subject.keywordloss aversionen
dc.subject.keyworddare takingen
dc.subject.keywordembarrassment aversionen
dc.subject.keywordframingen
dc.subject.stwQualifikationen
dc.subject.stwPrestigeen
dc.subject.stwEntscheidungstheorieen
dc.subject.stwProspect Theoryen
dc.subject.stwRegret Theoryen
dc.subject.stwAgency Theoryen
dc.subject.stwTheorieen
dc.titleSkill reputation, prospect theory, and regret theory-
dc.typeWorking Paperen
dc.identifier.ppn366230069en
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen

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