讲座：A Theory of Choice Bracketing under Risk 2022-10-31
题 目：A Theory of Choice Bracketing under Risk
嘉 宾：Mu Zhang, Assistant Professor, University of Michigan
主持人：Xi Zhi Lim, 助理教授，上海交通大学安泰经济与管理学院
In this paper, we study two heuristics, narrow bracketing and correlation neglect, that decision makers adopt to simplify the evaluation of risk from multiple sources and axiomatize them as behavioral deviations from the expected utility benchmark by relaxing the independence axiom. Our axiomatization reveals decision rules that (i) allow for narrow bracketing or correlation neglect or both and (ii) allow for different levels of narrow bracketing. We interpret the different sources as different streams of income to explain experimental evidence on violations of first order stochastic dominance. We propose a rationality ranking of decision makers based on their tendency to violate first order stochastic dominance and rank our models accordingly. Then, we interpret one source as background risk and show that narrow bracketing can explain risk aversion over small gambles. Finally, we interpret the different sources as consumption in different periods to explore the implications of narrow bracketing and correlation neglect on the optimal saving behavior. We also show that an Epstein-Zin type utility function can emerge because of narrow bracketing. This new utility function achieves separation between time and risk preferences without inducing an implausibly high early resolution premium as observed by Epstein, Farhi, and Strzalecki (2014).
Mu Zhang is an assistant professor of economics in University of Michigan. He received his BA in Economics and B.Sc. in Mathematics from Tsinghua University in 2016, and his PhD in Economics from Princeton University in 2022. He is a microeconomic theorist. His research focuses on decision theory and behavioral economics.