Hidden Skewness: On the Difficulty of Multiplicative Compounding Under Random Shocks

Published Online:https://doi.org/10.1287/mnsc.2016.2618

References

  • Abbink K, Rockenbach B (2006) Option pricing by students and professional traders: A behavioral investigation. Managerial Decision Econom. 27(6):497–510.CrossrefGoogle Scholar
  • Benartzi S, Thaler RH (1999) Risk aversion or myopia? Choices in repeated gambles and retirement investments. Management Sci. 45(3):364–381.LinkGoogle Scholar
  • Brünner T, Levinsky R, Qiu J (2011) Preference for skewness: Evidence from a binary choice experiment. Eur. J. Finance 17(7):525–538.CrossrefGoogle Scholar
  • Chen H, Rao AR (2007) When two plus two is not equal to four: Errors in processing multiple percentage changes. J. Consumer Res. 34(3):327–340.CrossrefGoogle Scholar
  • Christandl F, Fetchenhauer D (2009) How laypeople and experts misperceive the effect of economic growth. J. Econom. Psych. 30(3):381–392.CrossrefGoogle Scholar
  • Cox JC, Ross SA, Rubinstein M (1979) Option pricing: A simplified approach. J. Financial Econom. 7(3):229–263.CrossrefGoogle Scholar
  • Deck C, Schlesinger H (2010) Exploring higher order risk effects. Rev. Econom. Stud. 77(4):1403–1420.CrossrefGoogle Scholar
  • Ebert S, Wiesen D (2011) Testing for prudence and skewness-seeking. Management Sci. 57(7):1334–1349.LinkGoogle Scholar
  • Eckel CC, Grossman PJ (2015) Loving the long shot: Risk taking with skewed lotteries. J. Risk Uncertainty 51(3):195–217.CrossrefGoogle Scholar
  • Eisenstein EM, Hoch SJ (2005) Intuitive compounding: Framing, temporal perspective, and expertise. Working paper, Johnson Graduate School of Management, Cornell University, Ithaca, NY.Google Scholar
  • Ensthaler L, Nottmeyer O, Weizsäcker G, Zankiewicz C (2013) Hidden skewness: On the difficulty of multiplicative compounding under random shocks. Working paper, Humboldt University, Berlin.Google Scholar
  • Financial Industry Regulatory Authority (2009) FINRA Regulatory Note 09-31, Financial Industry Regulatory Authority, Washington, DC.Google Scholar
  • Fischbacher U (2007) z-Tree: Zurich toolbox for ready-made economic experiments. Experiment. Econom. 10(2):171–178.CrossrefGoogle Scholar
  • Gneezy U (1996) Probability judgments in multi-stage problems: Experimental evidence of systematic biases. Acta Psychologica 93(1–3):59–68.CrossrefGoogle Scholar
  • Gneezy U, Potters J (1997) An experiment on risk taking and evaluation periods. Quart. J. Econom. 112(2):631–645.CrossrefGoogle Scholar
  • Kemp S (1984) Perception of changes in the cost of living. J. Econom. Psych. 5(4):313–323.CrossrefGoogle Scholar
  • Klos A, Weber EU, Weber M (2005) Investment decisions and time horizon: Risk perception and risk behavior in repeated gambles. Management Sci. 51(12):1777–1790.LinkGoogle Scholar
  • Levy M, Tasoff J (2016) Exponential-growth bias and lifecycle consumption. J. Eur. Econom. Assoc. 14(3):545–583.CrossrefGoogle Scholar
  • Lusardi A, Mitchell OS (2011) Financial literacy and planning: Implications for retirement wellbeing. Working Paper 17078, National Bureau of Economic Research, Cambridge, MA.Google Scholar
  • McKenzie CRM, Liersch MJ (2011) Misunderstanding savings growth: Implications for retirement savings behavior. J. Marketing Res. 48(SPL):1–13.CrossrefGoogle Scholar
  • Redelmeier DA, Tversky A (1992) On the framing of multiple prospects. Psych. Sci. 3(3):191–93.CrossrefGoogle Scholar
  • Samuelson PA (1963) Risk and uncertainty: A fallacy of large numbers. Scientia 98(4):108–113.Google Scholar
  • Stango V, Zinman J (2009) Exponential growth bias and household finance. J. Finance 64(6):2807–2849.CrossrefGoogle Scholar
  • Stutzer M, Grant S (2013) Misperceptions of long-term investment performance: Insights from an experiment. J. Behav. Finance Econom. 3(1):1–20.Google Scholar
  • Wagenaar WA, Sagaria SD (1975) Misperception of exponential growth. Perception and Psychophysics 18(6):416–422.CrossrefGoogle Scholar
  • Wagenaar WA, Timmers H (1978) Extrapolation of exponential time series is not enhanced by having more data points. Perception and Psychophysics 24(2):182–184.CrossrefGoogle Scholar
  • Wagenaar WA, Timmers H (1979) The pond-and-duckweed problem: Three experiments on the misperception of exponential growth. Acta Psychologica 43(3):239–251.CrossrefGoogle Scholar
  • Wooldridge JM (2002) Econometric Analysis of Cross Section and Panel Data (MIT Press, Cambridge, MA).Google Scholar
INFORMS site uses cookies to store information on your computer. Some are essential to make our site work; Others help us improve the user experience. By using this site, you consent to the placement of these cookies. Please read our Privacy Statement to learn more.