Can People Learn about ‘Black Swans’? Experimental Evidence

Elise Payzan-LeNestour

The Review of Financial Studies, 2018, vol. 31, issue 12, 4815-4862

Abstract: How do people cope with tail risk? In a lab experiment that removed informational and incentive confounds, subjects overwhelmingly behaved like Bayesian learners. The results of simulations further revealed that if one is to survive under tail risk, one needs to follow the Bayesian approach, as all boundedly rational alternatives fail. These findings support the Bayesian assumption commonly made in prior studies on tail risk and model uncertainty, and they also demonstrate the importance of optimal learning under tail risk. Received February 15, 2017; editorial decision December 24, 2017 by Editor Andrew Karolyi. Authors have furnished supplementary data and code, which are available on the Oxford University Press Web site next to the link to the final published paper online.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhy040 (application/pdf)
Access to full text is restricted to 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:oup:rfinst:v:31:y:2018:i:12:p:4815-4862.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().