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Title: Three essays on the economics of decision making under risk
Author: Markoulakis, Andreas
ISNI:       0000 0004 7659 8096
Awarding Body: University of Kent
Current Institution: University of Kent
Date of Award: 2019
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Very often, people have to make decisions where the available options are not certain. In such situations risk becomes an important factor that ought to be seriously considered. It is not difficult to find examples where the importance of handling risky situations properly can be crucial: from simple everyday consumption and savings plans to more complicated future investment plans about stocks, bonds and portfolio optimization. These decisions could be directly related to choices that could generate either gains or losses, or to situations where people have to decide among options where both gains and losses can be present. Furthermore, a number of factors directly related to the decision making can be manipulated and thus, risk preferences could be affected accordingly. The impact of higher stakes and the possibility of intertemporal choices during the decision process constitute two such factors. This dissertation studies the decision making process behind such choices in three different lab experiments which are outlined in Chapters 2, 3, 4. The analysis of the data collected from all the experiments is based on well-known decision theory models. Expected Utility Theory (EUT) as presented by von Neumann and Morgenstern (1944) is the main model used in Chapter 2 for the analysis of risk preferences, which focuses on observations derived from gain-only questions. In Chapter 3, we complement EUT with Cumulative Prospect Theory (CPT) introduced by Tversky and Kahneman (1992), the most comprehensive decision theory model that can account for sign-dependence in risk preferences. This is a necessary move since the experiment we describe in this Chapter includes questions for gains and losses, too. In Chapter 4, the scope of our experimental design is expanded further by including questions with mixed options, too. In that way, we can focus our analysis on the most crucial tenet of CPT, loss aversion. In Chapter 4, we also make use of the Dual Theory (DT) model, introduced by Yaari (1987); this is a much less used model compared to EUT and CPT, but it offers a different and especially simpler modelling perspective compared to CPT which can be useful to applied research in decision making. In Chapter 5, we summarize the conclusions from the experiments outlined in the three previous chapters and we propose some potential topics for future research.
Supervisor: Fraser, Iain ; Bailey, Alastair Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available