Research

      Research Interests

      Publications

Case-based investing: stock selection under uncertainty, Journal of Behavioral and Experimental Finance 17 (2018) 53-59. Available here: https://www.sciencedirect.com/science/article/abs/pii/S2214635017301090 

Case-based decision theory (Gilboa and Schmeidler 1995) predicts that given a new problem, a decision maker will act based on the memory of actions and outcomes in past similar situations. The concept of similarity plays a central role in explaining behavior. Unlike expected utility theory, case-based decision theory (CBDT) does not require a decision maker to know alternative courses of action or all possible outcomes associated with each action. Fitting a CBDT model to data on stock transactions of retail investors in the Philippines, the author analyzed whether past personal trading experience on a stock is applied to an objectively similar stock. Results show a significant similarity effect consistent with the prediction of CBDT. Past personal trading gains spillover to stocks within the same industry sector, which may preclude portfolio diversification. Investors also apply past outcomes on a recommended stock to similar stocks. This underscores the strong influence of analyst recommendation on investor decisions.

Correlation neglect and case-based decisions, Journal of Risk and Uncertainty 59 (2019): 23-49. Available here:  https://link.springer.com/article/10.1007/s11166-019-09309-1 .  

In most theories of choice under uncertainty, decision-makers are assumed to evaluate acts in terms of subjective values attributed to consequences and probabilities assigned to events. Case-based decision theory (CBDT), proposed by Gilboa and Schmeidler, is fundamentally different, and in the tradition of reinforcement learning models. It has no state space and no concept of probability. An agent evaluates each available act in terms of the consequences he has experienced through choosing that act in previous decision problems that he perceives to be similar to his current problem. Gilboa and Schmeidler present CBDT as a complement to expected utility theory (EUT), applicable only when the state space is unknown. Accordingly, most experimental tests of CBDT have used problems for which EUT makes no predictions. In contrast, we test the conjecture that case-based reasoning may also be used when relevant probabilities can be derived by Bayesian inference from observations of random processes, and that such reasoning may induce violations of EUT. Our experiment elicits participants’ valuations of a lottery after observing realisations of the lottery being valued and realisations of another lottery. Depending on the treatment, participants know that the payoffs from the two lotteries are independent,  positively correlated, or negatively correlated. We find no evidence of correlation neglect indicative of case-based reasoning. However, in the negative correlation treatment, valuations cannot be explained by Bayesian reasoning, while stated qualitative judgements about chances of winning can. 

Determinants of self-reporting: an experiment on corporate leniency programs. SN Business & Economics 4, 27 (2024). Available here. https://doi.org/10.1007/s43546-024-00634-5 

Competition authorities around the world have adopted leniency programs which create incentives for cartel members to self-report or to come forward and provide information that will be sufficient to pursue prosecution. Although leniency programs have led to the crackdown of cartels, it is unclear whether some designs are more effective than others in encouraging cartel members to self-report. We conducted a laboratory experiment to determine whether risk of being caught, magnitude of the penalty, and reduction in fines when caught—the common parameters of a leniency program—affect the likelihood of self-reporting. We show that application for leniency was rare, and occurrence was not systematically linked to the penalty, detection risk or fine reduction. Also, implementing a leniency program did not result in fewer cartels nor lower offer prices compared to a scenario where a competition authority exists but does not implement a leniency program. There is an indication that the opportunity to self-report inadvertently provided an impetus for players to cooperate. This casts doubt on the marginal welfare effect of leniency programs in practice.