Prospect theory in the wild: how good is the nonexperimental evidence for prospect theory?

ABSTRACT

Prospect theory is widely thought to be one of the best-confirmed accounts of human decision-making under risk. There are numerous claims in the literature that various kinds of nonexperimental, observational evidence provide strong support for prospect theory. We investigate the veracity of these claims using a set of philosophy of science morals and a careful delineation of models of choice under risk, focussing on the extant versions of prospect theory and their various components. We challenge the claim that prospect theory is well supported because it explains the equity premium puzzle. In addition, we analyse a major international survey thought to support prospect theory and argue that the support is questionable, both for statistical reasons and because the evidence itself is mixed. Our analyses highlight some important ideas in the philosophy of science and caution against strong claims about support for prospect theory that rely on nonexperimental, observational evidence.     

Subjective beliefs and economic preferences during the COVID-19 pandemic

Experimental Economics - The COVID-19 pandemic presents a remarkable opportunity to put to work all of the research that has been undertaken in past decades on the elicitation and structural...     

Consumer perspectives on the African sharptooth catfish in rural and urban areas of the Northern Province

This study evaluated consumer behavioural patterns in relation to meat products, with special reference to the African sharptooth catfish, in the Northern Province. Personal interviews were conducted in rural Ga‐Mamphaka and urban Giyani. The major meat type purchased was found to be chicken (71 per cent in the rural and 46 per cent in the urban community). The sharptooth catfish was found to be acceptable to the majority of respondents, both urban (69 per cent) and rural (57 per cent). Most respondents also indicated that they would like to purchase canned catfish. A potential market for catfish would seem to exist at a price competitive with that of chicken.     

Two Sides of the Same Coin: Re-examining Nepotism and Discrimination in a Segmented Society

Abstract

We report the results from a series of trust games designed to distinguish racial discrimination from racial nepotism, played with a sample of high school students in Cape Town, South Africa. In contrast to the original work in this regard by Fershtman et al. (2005 Fershtman, C., Gneezy, U. and Verboven, F. 2005. “Discrimination and Nepotism: the efficiency of the anonymity rule,”. Journal of Legal Studies, 34: 371–396. [Crossref], [Web of Science ®] , [Google Scholar]), we find considerably greater heterogeneity in the way that proposers respond to the revealed racial identity of their partner, with nepotism being a dominant behavior. However, while some proposers exhibit a nepotistic bias in their offers that favors in-group members on average, others exhibit a nepotistic strategy that favors out-group members. A consequence of this nepotism is that both efficiency and equity are reduced on average.     

On the economics of trials: adversarial process, evidence, and equilibrium bias

The adversarial provision of evidence is modeled as a game inwhich two parties engage in strategic sequential search. Anaxiomatic approach is used to characterize a court's decisionbased on the evidence provided. Although this process treatsthe evidence submissions in an unbiased way, the equilibriumoutcome may still exhibit bias. Bias arises from differencesin the cost of sampling or asymmetry in the sampling distribution.In a multistage model, a prodefendant bias arises in the firststage from a divergence between the parties' stakes. Finally,the adversarial process generates additional costs that screenout some otherwise meritorious cases.     

Towards adequate and equitable energy provision for farmworker families

Consumption patterns of farmworker households are constrained by limited access and choice. Few households use electricity to any significant extent, most rely on fuelwood for power‐intensive energy applications, and the use of commercial hydrocarbon fuels is generally lower than in other rural communities. An evaluation of energy supply reveals opportunities for improvement, particularly for households on farms with a grid electricity supply and with the potential for fuelwood production. First, problems must be overcome, most of which result from the socio‐economic status of farmworkers and their dependence on their employers.     

Progress through school and the determinants of school dropout in South Africa

The release of the National Income Dynamics Study Wave 2 provides the first nationally representative longitudinal data collected in South Africa, making it possible to study transitions in and out of school, across grades and into work, in ways not previously possible. We illustrate the high levels of grade repetition evident in South African schools and show how school completion presents a significant hurdle with very few youth successfully matriculating. Exit from school does not offer any advantages as most youth find themselves idle once they have left school. Our regression analysis investigates correlates of school dropout and shows that falling behind is a key determinant of school dropout, even after controlling for school quality and socio-economic status. Those behind but attending higher quality schools are partially protected from dropping out. Some evidence that credit constraints may be related to dropout is found, especially among males.