The relevance of thinking-by-analogy for investors' willingness-to-pay: an experimental study

Siddiqi, Hammad (2012) The relevance of thinking-by-analogy for investors' willingness-to-pay: an experimental study. Journal of Economic Psychology, 33 1: 19-29. doi:10.1016/j.joep.2011.08.008


Author Siddiqi, Hammad
Title The relevance of thinking-by-analogy for investors' willingness-to-pay: an experimental study
Journal name Journal of Economic Psychology   Check publisher's open access policy
ISSN 0167-4870
1872-7719
Publication date 2012-01-01
Year available 2012
Sub-type Article (original research)
DOI 10.1016/j.joep.2011.08.008
Open Access Status Not Open Access
Volume 33
Issue 1
Start page 19
End page 29
Total pages 11
Place of publication Amsterdam, Netherlands
Publisher Elsevier
Language eng
Subject 2002 Cultural Studies
3202 Applied Psychology
3312 Sociology and Political Science
Abstract People tend to think by analogies. We investigate whether thinking-by-analogy matters for investors' willingness-to-pay for a risky asset in a laboratory experiment. We find that thinking-by-analogy has a strong influence when the assets in question have similar (but not identical) payoffs. The hypothesis of thinking-by-analogy or coarse thinking clearly outperforms other hypotheses including the hypothesis of arbitrage-free or rational pricing. When the similarity between the payoffs is reduced, the risk neutral and risk averse hypotheses outperform the hypothesis of thinking-by-analogy. Regardless of the similarity between the payoffs, the arbitrage-free or rational pricing remains the hypothesis with the worst performance.
Keyword Asset pricing
Call option
Coarse thinking
Cognitive psychology
Thinking-by-analogy
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: School of Economics Publications
 
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