High-stakes hedges are misunderstood too. A commentary on: “Valuing bets and hedges: Implications for the construct of risk preference”
Journal Title: Judgment and Decision Making - Year 2019, Vol 14, Issue 5
Abstract
Frederick, Levis, Malliaris & Meyer (2018) report a package of laboratory studies where participants underestimate the value of “hedges”: Risky bets which cancel out the risk of another presently-held bet. However, it might be questioned to what extent laboratory findings predict field behavior. People might better understand hedges when more money is at stake, or when they have more time to reflect. We discuss three gamblers who, instead of hedging, used a costly “cash-out” option to eliminate the risk of their bets on Leicester FC’s improbable victory in the 2015/2016 English Premier League soccer season. The decision to cash-out rather than to hedge led to individual losses of up to £8,000, and did not seem plausibly explained by rational economic factors. High-stakes hedges are misunderstood too.
Authors and Affiliations
Philip W. S. Newall and Dominic Cortis
Keywords
Related Articles
- EP ID EP678440
- DOI -
- Views 127
- Downloads 0
Bullshit for you; transcendence for me. A commentary on “On the reception and detection of pseudo-profound bullshit”
I raise a methodological concern regarding the study performed by Pennycook, Cheyne, Barr, Koehler & Fugelsang (2015), in which they used randomly generated, but syntactically correct, statements that were rated for prof...
Goals and plans in decision making
We propose a constructed-choice model for general decision making. The model departs from utility theory and prospect theory in its treatment of multiple goals and it suggests several different ways in which context can...
The impact of regret and worry on the threshold level of concern for flood insurance demand: Evidence from Dutch homeowners
It has been argued that individuals behave according to a threshold level of concern decision rule when considering protection against risk: if the perceived probability of the risk is below a threshold level, then the l...
"Decisions from experience" = sampling error + prospect theory: Reconsidering Hertwig, Barron, Weber & Erev (2004)
According to prospect theory, people overweight low probability events and underweight high probability events. Several recent papers (notably, Hertwig, Barron, Weber & Erev, 2004) have argued that although this pattern...
Graphs versus numbers: How information format affects risk aversion in gambling
In lottery gambling, the common phenomenon of risk aversion shows up as preference of the option with the higher win probability, even if a riskier alternative offers a greater expected value. Because riskier choices wou...