http://repub.eur.nl/res/aut/6091/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/37428/ 2012-12-01T00:00:00Z The value premium is relatively small for investors with a material fixed-income exposure, such as insurance companies and pension funds, especially when they are downside-risk-averse. Value stocks are less attractive to these investors because they offer a relatively poor hedge against poor bond returns. This result arises for plausible, medium-term evaluation horizons of around one year. Our findings cast doubt on the practical relevance of the value premium for these investors and reiterate the importance of the choice of the relevant test portfolio, risk measure and investment horizon in empirical tests of market portfolio efficiency. http://repub.eur.nl/res/pub/34914/ 2012-09-01T00:00:00Z Experiments frequently use a random incentive system (RIS), where only tasks that are randomly selected at the end of the experiment are for real. The most common type pays every subject one out of her multiple tasks (within-subjects randomization). Recently, another type has become popular, where a subset of subjects is randomly selected, and only these subjects receive one real payment (between-subjects randomization). In earlier tests with simple, static tasks, RISs performed well. The present study investigates RISs in a more complex, dynamic choice experiment. We find that between-subjects randomization reduces risk aversion. While within-subjects randomization delivers unbiased measurements of risk aversion, it does not eliminate carry-over effects from previous tasks. Both types generate an increase in subjects' error rates. These results suggest that caution is warranted when applying RISs to more complex and dynamic tasks. http://repub.eur.nl/res/pub/14104/ 2008-12-04T00:00:00Z This thesis applies insights from psychology and other behavioral sciences to overcome the shortcomings of the traditional finance approach (which assumes that agents and markets are rational) and improves our understanding of financial markets and its participants. More specific, this thesis provides important new insights into the preferences of investors, their investment decisions, and the behavior of financial markets. The results show that people dislike downside risk and employ decision-making patterns that may result in risk-taking behavior of which they are not aware, or in which they normally would not engage, and that can result in non-optimal behavior. More specific, people behave 'non-optimal' by changing their behavior in response to previous outcomes and by letting their preferences depend heavily on the other outcomes that are or were available, even when hundred thousands of euros are at stake. Moreover, people tend to use simplifying heuri! stics to construct their investment portfolios by focusing on the outcomes of the individual assets available instead of their total investment portfolio. Furthermore, this thesis shows that incorporating behavioral-based preference patterns has substantial influence on investorâ?Ts optimal behavior in financial markets. More specific, the value premium (the empirical finding that stocks with an high measure of book value relative to market value earn higher returns than stocks with a low measure) is nearly absent for investors with an substantial fixed income exposure, an annual evaluation horizon and an aversion to losses. http://repub.eur.nl/res/pub/14057/ 2008-03-01T00:00:00Z We examine the risky choices of contestants in the popular TV game show "Deal or No Deal" and related classroom experiments. Contrary to the traditional view of expected utility theory, the choices can be explained in large part by previous outcomes experienced during the game. Risk aversion decreases after earlier expectations have been shattered by unfavorable outcomes or surpassed by favorable outcomes. Our results point to reference-dependent choice theories such as prospect theory, and suggest that path-dependence is relevant, even when the choice problems are simple and well defined, and when large real monetary amounts are at stake. http://repub.eur.nl/res/pub/17276/ 2008-03-01T00:00:00Z http://repub.eur.nl/res/pub/14060/ 2007-07-13T00:00:00Z In de verschillende versies van het televisiespel Deal or No Deal staan sterk verschillende geldbedragen op het spel. Vergelijkingen van het risicogedrag binnen en tussen versies wijzen erop dat risicogedrag sterk wordt bepaald door eerdere verwachtingen die men heeft van de spelopbrengst. http://repub.eur.nl/res/pub/14065/ 2006-08-01T00:00:00Z In a classroom choice experiment with mixed gambles and moderate probabilities, we find severe violations of cumulative prospect theory (CPT) and of Markowitz stochastic dominance. Our results shed new light on the exchange between Levy and Levy (2002) and Wakker (2003) in this journal. http://repub.eur.nl/res/pub/7230/ 2006-01-11T00:00:00Z The popular television game show deal or No Deal offers a unique opportunity for analyzing decision making under risk: it involves very large stakes, simple take-or-leave decisions that require minimal skill or strategy and near-certainty about the probability distribution. Based on a panel data set of the choices of contestants in all game rounds of 53 episodes from Australia and the Netherlands, we find an average Pratt-Arrow relative risk aversion (RRA) between roughly 1 and 2 for initial wealth levels between 0 and 50,000. The RRA differs substantially across the contestants and some even exhibit risk seeking behavior. The cross-sectional differences in RRA can be explained in large part by the previous outcomes experienced by the contestants during the game. Most notably, consistent with the break-even effect,the RRA strongly decreases following earlier losses and risk seeking arises after large losses.