Uncertainty in economic decision-making can present itself in a variety of forms however the most commonly researched are risk and ambiguity. Recently, there has been a resurgence of interest in evaluating the relationship between individuals’ preference for risk and ambiguity through the use of cognitive decision models. Accurately characterizing these preferences therefore relies on the use of appropriate models and model fitting techniques. Huettel, Stowe, Gordon, Warner & Platt (2006) used Expected Utility Theory (EUT) and the alpha maxmin model to evaluate individuals risk and ambiguity preference, respectively. Their results suggest that risk and ambiguity evoke disparate cognitive processes at both a behavioural and neural level. However, the use of EUT in characterizing risk preference calls into question the accuracy of their results. The present study attempts to re-evaluate the relationship between risk and ambiguity using a more appropriate and well-established model of risky decision-making, Cumulative Prospect Theory (CPT). Using a similar task design as Huettel et al. (2006), participants (N = 93) were required to make a series of decisions between two options that involved monetary outcomes. Each trial consisted of choices between two of the following options: risky, certain and ambiguous. Parameters for both EUT and CPT were estimated on risky trials and used to inform the estimation of ambiguity parameters using the α-maxmin on ambiguous trials. Moreover, each model was estimated using two methods of model fitting, optimization and hierarchical Bayesian analysis methods. Overall, CPT outperformed EUT on risky trials as well, ambiguity parameters from α-maxmin informed by CPT risk parameters outperformed EUT informed α-maxmin parameters. Finally, CPT estimated alpha and beta values were found to be uncorrelated. However, the present results demonstrate that ambiguity preference parameters correlate with the probability distortion parameters that may be a more accurate depiction of an individuals’ level of risk preference. These results can be used to inform future endeavours uncovering the neural correlates of levels of uncertainty in decision-making. / Graduate

Prospect theory is a descriptive model of individual decision-making under risk (Kahneman and Tversky 1979). The central tenet of prospect theory posits that the risk orientation of decision-makers is affected by the gains vs. losses domains in which they are situated. Individuals are predicted to be risk-averse in the domain of gains and risk seeking in the domain of losses. Although prospect theory made significant contributions to decision theory, it has important limitations. Foremost, as noted by Levy (1997a), prospect theory is not a complete theory of decision-making. Like rational choice theory, prospect theory attempts to explain choices or outcomes, not the processes through which those choices come about (Abelson and Levi 1985, 235). In response to this limitation of prospect theory, this dissertation intends to address the following set of puzzles: Do gains vs. losses domains affect the decision processes in foreign policy decision making? If so, in what way will decision strategies change? That is, what strategies are most likely to be employed when the decision maker is in the domain of gains? And, in contrast, what strategies are the most likely to be utilized when the decision maker is in the domain of losses? To address these questions, I develop and extend prospect theory to account for the impact of gains vs. losses domains on decision strategy selections by decision makers under risk. A set of testable hypotheses are then derived. To render a robust test of these hypotheses, I employ a cross-national experimental research design, utilizing American subjects first and then replicating the same experiment with subjects in mainland China. In terms of research instrument, I utilize the computerized decision process tracer – the Decision Board Platform. Specifically, the “moves” of decision makers are recorded by the Decision Board and then used to identify choices and to infer specific decision strategies. Statistical analysis of the experimental results demonstrates support for the major hypotheses. A decision maker in the domain of gains is more likely to employ a holistic, alternative-based, compensatory, and maximizing decision strategy than is a decision maker in the domain of losses.

The notion that corporations would voluntarily devote resources to serve non-shareholder interests seems to contradict the purpose of commerce. Yet, corporate social responsibility ranks among the most prominent aspects of contemporary capitalism, reaching – in the words of one author – a point of nearly universal adoption among businesses. Over four decades of empirical testing has provided no incontrovertible evidence to support the belief that businesses benefit, even in the long run, from responsible behaviour. Peculiarly, then, it appears that corporations are defying the logic of competitive markets by investing in CSR en masse without an established business case for doing so. Inspiring the work is a research question rooted in the observation of a counter-intuitive: if not profit, in every circumstance, what is turning the attention of nearly every major corporation away from their bottom line and towards social interests? The thesis explores what other factors may lay behind the business community’s curious adoption of CSR, including a new hypothesis that corporate leaders may be diverging from the normative ideal of rational choice and following boundedly-rational patterns of behaviour. It argues that CSR is a form of risk-averse corporate behaviour from a private sector that has seen tremendous growth and gain since the end of the Second World War.

Denna studie undersöker hur premiepensionssparare tar beslut och vad som ligger till grund för valet att vara aktiv eller passiv i syfte att skapa ökad förståelse och underlätta utformningen av ett ökat beslutsstöd för premiepensionsspararna. Tidigare studier har visat att premiepensionssparare som är kontinuerligt aktiva i sin placering är de som får högst avkastning på sin premiepension, ändå är en stor andel av svenska premiepensionssparare passiva. Studien undersöker några av de faktorer och tankesätt som ligger till grund för att en stor andel av svenska premiepensionssparare inte tar beslut som förväntas enligt teoretiska beslutsteorier som förutsätter rationalitet. Som verktyg för att undersöka och öka förståelsen för premiepensionssparares beslutsfattande används prospect theory som är en alternativ teori till den klassiska ekonomiska teorin om ekonomiskt beslutsfattande. Studien grundar sig i problematiken som uppstår när samhällsutvecklingen allt mer skapar större informationsflöde samtidigt som allt mer beslut och risk läggs på individen. Mängden information ökar samtidigt som det blir allt svårare att filtrera vilken information som är viktig. Genom enkätundersökning visar studien att informationsöverflöd och kunskapsbrist är de främsta orsakerna till valet av passivitet. Studien visar också att en högre kvalitet på den information som ges om fonder och premiepensionsystemet skulle kunna få fler premiepensionssparare att bli aktiva. Studien ger även indikationer om att svenska premiepensionssparare tar beslut enligt prospect theory.

Orientador: Mário Augusto Bertella / Banca: Gilberto Tadeu Lima / Banca: Elton Eustaquio Casagrande / Resumo: As Finanças Comportamentais, com base em estudos empíricos, procuram demonstrar que os investidores nem sempre se mantêm racionais ao tomarem decisões que envolvem riscos, conforme argumentava a Teoria Neoclássica de Finanças. Este trabalho tem como objetivo contextualizar o recente campo de estudo e replicar a investigação empírica do artigo seminal de Kahneman e Tversky (1979) que aborda a Teoria do Prospecto e que constitui a base de Finanças Comportamentais. Simultaneamente, serão comparados os resultados da pesquisa com os de Kahneman e Tversky (1979) com os obtidos nesse estudo. Os resultados encontrados nesta população específica mostram similaridade, e que mesmo com populações e períodos diferentes, os indivíduos tendem a se comportar de maneira, na maioria das vezes, contraria ao que argumentava a Teoria Neoclássica de Finanças / Abstract: Basing on empirical studies, Behavioral Finance seek to demonstrate that investors not always have a rational posture when it comes to making decisions that might involve some sort of risk, according to Neoclassical Finance Theory. This paper aims to contextualize recent studies and respond to the empirical investigation on Kahneman and Tversky's (1979) seminal article, which approaches The Prospect Theory and constitutes the basis for Behavioral Finance. The results of the investigation will simultaneously be compared to those of Kahneman and Tversky (1979). The results, which have been specifically found in this population, show that the results of the samples are similar, and even in different populations and different periods, individuals tend to behave, more often than not, just as opposed to the arguments of the Neoclassical Finance Theory / Mestre

Abstract The behavior of investors is often at odds with the assumptions of traditional finance theory. Research conducted over the past half-century or so abounds with examples in which the central axioms of traditional theory are systematically violated. One of the most well-established behavioral patterns in this context is the disproportionate tendency of investors to sell stocks that have appreciated in value since purchase (‘winners’) rather than stocks that have declined in value (‘losers’); this phenomenon is known as the disposition effect and most commonly attributed to Kahneman and Tversky’s (1979) prospect theory. The overall aim of this doctoral thesis is to investigate the robustness of this phenomenon, its underlying mechanisms, and its potential implications for individual investors. The four independent but related essays of this thesis were designed to answer the following research questions: (1) Does the disposition effect ‘survive’ bear markets, in which investors may not be able to realize gains even if they wish to do so? (2) Is there any supporting evidence for prospect theory-based explanation of the disposition effect in the form of other observed behavior consistent with the theory? (3) Is prospect theory the most feasible explanation for the disposition effect? (4) What are the implications of the disposition effect from the point of view of individual investors? Using comprehensive data covering virtually all trades executed in the Finnish stock market during 1995–2003, this thesis demonstrates the following: (1) As robust as the disposition effect appears to be in light of previous studies, the phenomenon is only partially detected in bear markets. (2) The relationship between prospect theoretic preferences and investor behavior is not easily generalizable to other behavioral patterns besides the disposition effect. (3) In fact, even the relationship between prospect theory and the disposition effect is not as strong as is generally believed. Our results instead suggest an explanation based on escalation of commitment, according to which the disposition effect is caused above all by self-justificatory concerns. (4) Finally, although the disposition effect is generally inconsistent with economic rationality, it does not appear to be detrimental to investment performance.

This dissertation is composed of two manuscripts in Production Economics and two manuscripts in International Agricultural Development. The first two manuscripts focus on production economics, and both are an exploration of nitrogen use and its impact on continuous corn production and profitability in Colorado. The first manuscript titled "Switching Regression Stochastic Plateau Production Functions––A Comparison of Alternative Specifications" proposes an alternative approach for estimating crop yield response functions using a frequentist approach. The second manuscript titled "Profitability Effects of Different Tillage Systems in Continuous Corn Rotations" explores the interaction between different tillage systems and nitrogen fertilization in irrigated continuous corn production in northeastern Colorado. We find that strip tillage is better suited for continuous corn production under the agro-climatic conditions in northeastern Colorado. The third and fourth manuscripts focus on international agricultural development and analyze the role of factors that influence the agricultural development of small-holder farmers in Ecuador, namely, markets, food value chains, risk preferences, and risk perceptions. The third manuscript titled "Does the Use of Specialty Varieties and Post-Harvest Practices Benefit Farmers? Cocoa Value Chains in Ecuador" analyzes the impact of the use of specialty cocoa varieties on small-scale farmers' income. It finds that the use of specialty cocoa varieties has a low impact on small-scale cocoa producers' income, and that post-harvest practices may lead to substantial price responses irrespective of the type of cocoa grown. Finally, the fourth manuscript titled "Linking Risk Preferences and Risk Perceptions of Climate Change Using Prospect Theory" explores how farmers' risk preferences correlate with their perceptions of climate risk. It finds that farmers that behave in accordance to the assumptions of prospect theory are more likely to perceive greater risks from climate change, that is, they are more likely to perceive the risks associated with climate change as being more threatening at a personal level. Since risk perception is a necessary prerequisite for adaptation, the results presented in this manuscript, have important policy implications for process of adoption of new technologies aimed at mitigating effects of climate change. / Doctor of Philosophy / This dissertation focuses on Production Economics and International Agricultural Development. The first two manuscripts focus on production economics, and both are an exploration of nitrogen use and its impact on continuous corn production and profitability in Colorado. The first manuscript proposes an alternative approach for estimating crop yield response functions to a single input. The second manuscript explores the interaction between different tillage practices and nitrogen fertilization in irrigated continuous corn production. The third and fourth manuscripts focus on international agricultural development, and they analyze the role of different factors that influence the agricultural development of small-holder farmers in Ecuador. The third manuscript analyzes cocoa markets in Ecuador. It finds that the use of gourmet cocoa varieties has a low impact on small-scale cocoa producers' income, and that post-harvest practices may lead to substantial benefits. Finally, the fourth manuscript explores farmers' risk behavior. It finds that farmers that behave in accordance to the assumptions of prospect theory, are more likely to show a greater risk perception of climate change, that is, they are more likely to perceive the risks associated with climate change as being more threatening at a personal level. Since risk perception is a necessary prerequisite for adaptation, the results presented in this manuscript, have important policy implications for the adoption process of new technologies aimed at mitigating effects of climate change.

Seit Ende der sechziger Jahre wird mit unterschiedlicher Intensität auf die Innovationskrise und auf den Rückgang der Investitionstätigkeit deutscher Unternehmen hingewiesen. Zur Zeit erlebt dieses Thema vor allem im Zusammenhang mit der abnehmenden Wettbewerbsfähigkeit der deutschen Unternehmen im internationalen Vergleich wieder eine Renaissance. Mangelnde Innovationen und daraus resultierende Investitionslücken führen danach nicht nur zu einem verringerten Wirtschaftswachstum, sondern erschweren darüber hinaus auch den noch immer nicht vollständig bewältigten Strukturwandel, der aber vor dem Hintergrund der zunehmenden Globalisierung gefordert wird. Schließlich wird auf die arbeitsplatzerhaltende oder -schaffende Wirkung von Innovationen hingewiesen.

The standing debate regarding how preferences should be defined is still evident in research today. Are they invariant to current endowment as a neoclassical practitioner would proclaim, or reference dependent as a behavioural economist would state? This theoretical discrepancy, regarding how preferences should be defined, when agents are experienced at what they do is found by List (2003) to be non-existing. In recollection of this notation, this thesis investigates how professional agents adopt risk in reference to a point that a neoclassical practitioner would deem irrational. With data on professional golf players on the U.S professional golf tour during 2013-2018, I find evidence that players respond in terms of what risk they adapt to a normatively irrelevant reference point in accordance to what Prospect Theory would predict. Indicating that even experienced agents have reference dependent preference towards risk. To give what the data proclaim a causal interpretation I adopt a quasi-experimental regression kink design. My estimates indicate a causal kink at my artificial threshold but are proven fragile to bandwidth alterations. Even though a causal claim is questionable, a sensitivity analysis finds evidence that my artificial threshold drives the relationship. Supporting the viewpoint that preferences towards risk are reference dependent and that experience does not eradicate the difference between what we do and what we should do.

Sammanfattning Beteendeekonomi var fram till år 1979 ett forskningsämne som saknade större motsättningar. Sedan 1700-talet var den allmänna uppfattningen att de beslut som individer fattade under risk var baserade på ett rationellt beteende. Daniel Kahneman och Amos Tverskys åsikt var polär mot den tidigare forskningen och baserat på deras kritik mot föregående studier inom beteendeekonomi presenterade de år 1979 prospektteorin, en teori som senare renderade i nobelpriset. Därefter har teorin utvecklats och år 1992 publicerade Tversky och Kahneman den kumulativa prospektteorin. Den kumulativa prospektteorin (1992) baseras på att individer frångår objektiva sannolikheter och istället utgår beslut från subjektiva preferenser och därav ett irrationellt beteende. Kahneman och Tversky ansåg att rationella individer inte alltid fattar beslut baserat på vilket alternativ som genererar den högsta nyttan utan tidigare erfarenheter och upplevelser resulterar i att individer agerar annorlunda. Ett flertal studier har funnit empiriskt bevis för att den kumulativa prospektteorin är applicerbar på investerare, däribland på förvaltare inom fonder samt inom private banking. Denna studies syfte är att med hjälp av tolv kvalitativa intervjuer erhålla en djupare förståelse huruvida den kumulativa prospektteorin är applicerbar på svenska fondförvaltare med inriktning på företagsobligationer. Samtidigt som allmänheten enligt de intervjuade förvaltarna tenderar att ha bristfälliga kunskaper gällande risker associerade till företagsobligationer anser många journalister, bland annat på grund av de förväntade räntehöjningarna, att obligationsmarknaden befinner sig i en bubbla. Detta gör företagsobligationsmarknaden intressant att undersöka. Studiens slutsats är att förvaltarna, i likhet med den kumulativa prospektteorin, agerar irrationellt vid investeringsbeslut. Detta på grund av att förvaltarna ger indikationer på att de inte enbart investerar i de företagsobligationer som genererar den högsta nyttan, det vill säga avkastning, utan tar stor hänsyn till risker kopplade till företagsobligationer. I likhet med teorin tenderar förvaltarna att hantera likviditetsproblematiken och kreditrisken i enlighet med den kumulativa prospektteorin. Vidare är studiens slutsats att förvaltarna, i kontrast till den kumulativa prospektteorin, övervärderar en redan hög sannolikhet för att ränte- och inflationsrisken ska påverka fonderna negativt. Dessutom ges indikationer att förvaltarna, i likhet med teorin, agerar riskavert mot vinster, men i kontrast till teorin, agerar de också riskavert mot förluster. Detta stöds bland annat genom att majoriteten av förvaltarna agerar med en hög grad av försiktighet samt deras bemötande av kreditrisk.