I have completed a theoretical model and an experiment for the first paper. The model is about how individual payoff experience could distort belief formation and updating. The model predicts that previous gains (losses) make an agent relatively overweight positive (negative) information when updating beliefs, and thus become over-optimistic (over-pessimistic) than a Bayesian decision maker. The experiments so far conducted respectively test two aspects of the model, namely whether previous payoffs bias beliefs, and whether the belief bias is mediated by biased information processing. From the experiments, I obtained results that could confirm the predictions of my model.
The paper has been finished and I have presented paper in several conferences and seminars to disseminate the results. These include seminar at the Centre for Experimental Social Sciences, Nuffield College; Department of Economics, University of Oxford; ETH-Zurich; Department of Economics, Erasmus University Rotterdam; University of East Anglia; School of Management, Fudan University; Department of Economics, Shanghai University of Finance and Economics; Department of Economics, University of Glasgow; Department of Finance, Leicester University; Department of Finance, Maastricht University; Nankai University; Colby College, the Tinbergen Institute; University of Gothenburg; Centre for Experimental Social Sciences, Santiago, Chile; Society for Experimental Finance Meeting; Maastricht Behavioral and Experimental Economics Symposium, Economic Science Association Meeting, Games World Congress meeting.
Now the paper has been conditionally accepted at the Economic Journal.
The Marie Curie funding will further support my investigation of this topic. For instance, I have also conducted experiments on whether and how past payoff experience could influence the decision maker's ambiguity attitudes; whether the objective account of past experience or individuals' subjective memory of past experience influence behavior.
We have completed the experiments on subjective memory. The project contains a model and an experiment on how investors mis-remember past gains and losses to support their positive self-image. We document that after investing in an risky asset, investors over-remember positive outcomes of the asset compared with negative outcomes. We have presented the paper at University of Oxford, Maastricht University, University of Bonn, European Economic Association Meeting, American Finance Association Meeting, Society for Experimental Finance Meeting, Dongbei University of Finance and Economics, International Meeting on Behavioral and Experimental Social Sciences, Economic Science Association Meeting, etc. The paper has been finished and is currently under review at the top economics journal, the American Economic Review.
The project on ambiguity attitudes contains an experiment to test whether previous gains and losses ambiguous situations could shape the decision maker's subsequent ambiguity attitude. The ambiguous situation we introduce in the lab is the stock market, a natural setting. And in this project we implement an innovative belief elicitation method that could jointly estimate subjects' ambiguity attitudes and ambiguity-neutral probabilistic beliefs. The experiment for this project is currently in progress.
