Optimal Stopping with Behaviorally Biased Agents: The Role of Loss Aversion and Changing Reference Points

@article{Kleinberg2021OptimalSW,
  title={Optimal Stopping with Behaviorally Biased Agents: The Role of Loss Aversion and Changing Reference Points},
  author={Jon M. Kleinberg and Robert D. Kleinberg and Sigal Oren},
  journal={Proceedings of the 22nd ACM Conference on Economics and Computation},
  year={2021}
}
One of the central human biases studied in behavioral economics is reference dependence - people's tendency to evaluate an outcome not in absolute terms but instead relative to a reference point that reflects some notion of the status quo [4]. Reference dependence interacts closely with a related behavioral bias, loss aversion, in which people weigh losses more strongly than gains of comparable absolute values. Taken together, these two effects produce a fundamental behavioral regularity in… 

Prophet Inequalities via the Expected Competitive Ratio

We consider prophet inequalities under general downward-closed constraints. In a prophet inequality problem, a decision-maker sees a series of online elements and needs to decide immediately and

References

SHOWING 1-10 OF 23 REFERENCES

Are Investors Reluctant to Realize Their Losses?

I test the disposition effect, the tendency of investors to hold losing investments too long and sell winning investments too soon, by analyzing trading records for 10,000 accounts at a large

Advances in prospect theory: Cumulative representation of uncertainty

We develop a new version of prospect theory that employs cumulative rather than separable decision weights and extends the theory in several respects. This version, called cumulative prospect theory,

Prospect theory: analysis of decision under risk

Analysis of decision making under risk has been dominated by expected utility theory, which generally accounts for people's actions. Presents a critique of expected utility theory as a descriptive

Too Proud to Stop: Regret in Dynamic Decisions

Regret and its anticipation affect a wide range of decisions. Job-seekers reject offers while waiting for an offer to match their best past offer; investors hold on to badly performing stocks; and

A Model of Casino Gambling

TLDR
It is demonstrated that for a wide range of preference parameter values, a prospect theory agent would be willing to gamble in a casino even if the casino offers only bets with no skewness and with zero or negative expected value.

Loss Aversion and Seller Behaviour: Evidence from the Housing Market

Data from downtown Boston in the 1990s show that loss aversion determines seller behavior in the housing market. Condominium owners subject to nominal losses 1) set higher asking prices of 25-35

The Realization Effect: Risk-Taking after Realized versus Paper Losses

Understanding how prior outcomes affect risk attitudes is critical for the study of choice under uncertainty. A large literature documents the significant influence of prior losses on risk attitudes.

The best choice problem under ambiguity

We model and solve best choice problems in the multiple prior framework: An ambiguity averse decision maker aims to choose the best among a fixed number of applicants that appear sequentially in a