The effect of fast and slow decisions on risk taking

• We experimentally compare fast and slow decisions in a series of experiments on financial risk taking in three countries involving over 1700 subjects. To manipulate fast and slow decisions, subjects were randomly allocated to responding within 7 seconds (time pressure) or waiting for at least 7 or 20 seconds (time delay) before responding. To control for different effects of time pressure and time delay on measurement noise, we estimate separate parameters for noise and risk preferences within a random utility framework. We find that time pressure increases risk aversion for gains and risk taking for losses compared to time delay, implying that time pressure increases the reflection effect of Prospect Theory. The results for gains are weaker and less robust than the results for losses. We find no significant difference between time pressure and time delay for loss aversion (tested in only one of the experiments). Time delay also leads to less measurement noise than time pressure and unconstrained decisions, and appears to be an effective way of decreasing noise in experiments.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business (hsv//eng)

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Keyword

Prospect Theory

Experimental economics

Time pressure

Measurement noise

Prospect Theory; Experimental economics; Time pressure; Measurement noise

Publication and Content Type

ref (subject category)

art (subject category)