Self-selection in risky financial decision-makingAn experiment on framing and �perceived loss� aversion
- Comeig Ramírez, Irene
- Bediou, Benoit
- Jaramillo Gutiérrez, Ainhoa
- Sander, David
Año de publicación: 2010
Número: 7
Páginas: 1-15
Tipo: Artículo
Resumen
A major characteristic of financial markets is information asymmetry. To combat its problems principals can use screening. That is, they can offer the clients a menu of contracts and infer their risk level from their choices. If the pattern of choices that clients with different risk level make differs, there is self-selection of clients and screening occurs. We conduct an experiment to address an important question for such settings.does the framing of the offered menu of contracts interfere with the self-selection of clients? The answer is yes. In fact, subjects�f choices shift when the same (positive) outcomes of the same menu of contracts are presented in two different frames. Since both frames differ in the �\perceived. reference-point, we propose a theoretical approach that initially follows Prospect Theory to explain our results. Subjects exhibit loss aversion in their perception and assessment of the positive outcomes below the reference-point, and self-selection fails to occur.