Individual Preferences, Monetary Gambles, and Stock Market Participation: A Case for Narrow Framing

@article{Barberis2006IndividualPM,
  title={Individual Preferences, Monetary Gambles, and Stock Market Participation: A Case for Narrow Framing},
  author={Nicholas Barberis and Ming Huang and Richard H. Thaler},
  journal={Behavioral \& Experimental Economics eJournal},
  year={2006}
}
We argue that ?narrow framing,? whereby an agent who is offered a new gamble evaluates that gamble in isolation, may be a more important feature of decisionmaking than previously realized. Our starting point is the evidence that people are often averse to a small, independent gamble, even when the gamble is actuarially favorable. We find that a surprisingly wide range of utility functions, including many nonexpected utility specifications, have trouble explaining this evidence, but that this… 
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510 Citations
Highly Influential Citations
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Background Citations
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Methods Citations
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Results Citations
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510 Citations

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References

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We argue that narrow framing, whereby an agent who is offered a new gamble evaluates that gamble in isolation, separately from other risks she already faces, may be a more important feature of…

Preferences with Frames: A New Utility Specification that Allows for the Framing of Risks

TLDR
This paper proposes a tractable preference specifications for narrow framing and demonstrates its tractability in both portfolio choice and equilibrium settings.

The Loss Aversion/Narrow Framing Approach to the Equity Premium Puzzle

We review a recent approach to understanding the equity premium puzzle. The key elements of this approach are loss aversion and narrow framing, two well-known features of decision-making under risk…

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