Financial Engineering and Rationality: Experimental Evidence Based on the Monty Hall Problem

Brain Kluger () and Daniel Friedman

Labsi Experimental Economics Laboratory University of Siena from University of Siena

Abstract: Financial engineering often involves redefining existing financial assets to create new financial products. This paper investigates whether financial engineering can alter the environment so that irrational agents can quickly learn to be rational. The specific environment we investigate is based on the Monty Hall problem, a well-studied choice anomaly. Our results show that, by the end of the experiment, the majority of subjects understand the Monty Hall anomaly. Average valuation of the experimental asset is very close to the expected value based on the true probabilities.

Keywords: experiment; behavioral finance (search for similar items in EconPapers)
JEL-codes: C90 (search for similar items in EconPapers)
Date: 2006-07
New Economics Papers: this item is included in nep-cbe and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:usi:labsit:007

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