Universität zu Köln

Dertwinkel-Kalt, Markus and Wenzel, Tobias (2019). Focusing and framing of risky alternatives. J. Econ. Behav. Organ., 159. S. 289 - 305. AMSTERDAM: ELSEVIER SCIENCE BV. ISSN 1879-1751

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Abstract

This paper develops a theory of focusing and framing in an intertemporal context with risky choices. We provide a selection criterion between existing theories of focusing by allowing a decision maker to choose her frame such that her attention is either drawn to salient events associated with an option or to the expected utilities an option yields in different time periods. Our key assumption is that a decision maker can choose her frame in a self-serving manner. We predict that the selected frame induces overoptimistic actions in the sense that subjects underrate downside risk but overrate upside risk and accordingly reveal overoptimistic choices. Hence, our theory can explain phenomena such as excessive harmful consumption (smoking, unhealthy diet) and risky investments (entrepreneurship, lotteries, gambling) in one coherent framework. Notably, overoptimistic actions are not universal, but have plausible limits. We characterize under which situations overoptimistic actions are most likely to occur and under which circumstances choices should be rational or even pessimistic. (C) 2017 Elsevier B.V. All rights reserved.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Dertwinkel-Kalt, Markus UNSPECIFIED UNSPECIFIED UNSPECIFIED Wenzel, Tobias UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-154692
DOI:	10.1016/j.jebo.2017.12.020
Journal or Publication Title:	J. Econ. Behav. Organ.
Volume:	159
Page Range:	S. 289 - 305
Date:	2019
Publisher:	ELSEVIER SCIENCE BV
Place of Publication:	AMSTERDAM
ISSN:	1879-1751
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language DECISION-MAKING; OPTIMISTIC BIAS; SALIENCE THEORY; OVERCONFIDENCE; COMPETITION; INVESTMENT; ILLUSION; RETURNS; CHOICE Multiple languages Economics Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/15469