Individual Preferences, Monetary Gambles, and Stock Market Participation: A Case for Narrow Framing

Nicholas Barberis, Ming Huang and Richard Thaler

American Economic Review, 2006, vol. 96, issue 4, 1069-1090

Abstract: We argue that ?narrow framing,? whereby an agent who is offered a new gamble evaluates that gamble in isolation, may be a more important feature of decisionmaking than previously realized. Our starting point is the evidence that people are often averse to a small, independent gamble, even when the gamble is actuarially favorable. We find that a surprisingly wide range of utility functions, including many nonexpected utility specifications, have trouble explaining this evidence, but that this difficulty can be overcome by allowing for narrow framing. Our analysis makes predictions as to what kinds of preferences can most easily address the stock market participation puzzle. (JEL D81, G11)

Date: 2006
Note: DOI: 10.1257/aer.96.4.1069
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (234)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/aer.96.4.1069 (application/pdf)
http://www.aeaweb.org/aer/data/sept06/20031011_data.zip (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:96:y:2006:i:4:p:1069-1090

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().