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Economic Implications of State-Wide COVID-19 Response Aggressiveness
In: Foltice, Bryan and Parker, Michael Edward (2022) "Economic Implications of State-Wide COVID-19 Response Aggressiveness," Journal of Vincentian Social Action: Vol. 6: Iss. 2, Article 5.
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Finding Value in NFL Draft Picks
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Finding Value in NFL Draft Picks
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Working paper
Ambiguity Aversion and Experiential Learning: Implications for Retirement Planning
In: Foltice, B., & Rogers, R. (2020). Ambiguity aversion and experiential learning: implications for long-term savings decisions. Review of Behavioral Finance.
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In Equations We Trust? Formula Knowledge Effects on the Exponential Growth Bias in Household Finance Decisions
In: Decision analysis: a journal of the Institute for Operations Research and the Management Sciences, INFORMS, Band 14, Heft 3, S. 170-186
ISSN: 1545-8504
Exponential growth effects play a major role in many household finance decisions. A systematic bias in dealing with exponential growth can lead to poor savings and debt decisions. In this paper, we extend previous research on the exponential growth bias in the savings and debt domains and provide a first experimental link between these two important fields of consumer financial decision making. We develop a measure for the exponential growth bias that naturally extends over different domains and parameter settings, and we explore the ramifications of being acquainted with the basic formula of exponential savings growth. Specifically, we analyze whether such formula knowledge helps only in calculating simple compound interest scenarios with a pocket calculator or if it provides benefits that go beyond this narrow field of application. We observe that—even without a pocket calculator—individuals who know the compound interest formula provide less biased estimates for problems from the savings domain and also for slightly more complicated debt amortization problems that also build on exponential growth effects. We conclude that being acquainted with the compound interest formula provides some intuitive grasp of exponential effects that can be helpful in a broader range of household finance decisions. At the same time, we observe that too much dependence on a calculator can have adverse effects: when equipped with a pocket calculator, a number of participants, both aware and unaware of the compound savings formula, provided persistently insensible answers greater than the initial loan balance in the debt domain.
Using the Volatility Index (VIX) as a Trading Indicator
In: The Journal of Beta Investment Strategies, Winter 2023, 14 (4) 81 - 91 DOI: 10.3905/jbis.2023.1.048
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Misperception of Exponential Growth: Are People Aware of Their Errors?
In: Decision analysis: a journal of the Institute for Operations Research and the Management Sciences, INFORMS, Band 16, Heft 4, S. 261-280
ISSN: 1545-8504
Previous research shows that individuals make systematic errors when judging exponential growth, which has harmful effects for their financial well-being. This study analyzes how far individuals are aware of their errors and how these errors are shaped by arithmetic and conceptual problems. Whereas arithmetic problems could be overcome using computational assistance like a pocket calculator, this is not the case for conceptual problems, a term we use to subsume other error drivers like a general misunderstanding of exponential growth or overwhelming task complexity. In an incentivized experiment, we find that participants strongly overestimate the accuracy of their intuitive judgment. At the same time, their willingness to pay for arithmetic assistance is too high on average, often much above the actual benefits a calculator provides. Using a multitier system of task complexity we can show that the willingness to pay for arithmetic assistance is hardly related to its benefits, indicating that participants do not really understand how the interplay of arithmetic and conceptual problems shape their errors in exponential growth tasks. Our findings are relevant for policymaking and financial advisory practice and can help to design effective approaches to mitigate the detrimental effects of misperceived exponential growth.