Hidden Skewness: On the Difficulty of Multiplicative Compounding Under Random Shocks

• 成果类型: Article
• 署名作者: Ensthaler, Ludwig; Nottmeyer, Olga; Weizsaecker, Georg; Zankiewicz, Christian
• 署名单位: IZA Institute Labor Economics; Humboldt University of Berlin; Leibniz Association; DIW Berlin - Deutsches Institut fur Wirtschaftsforschung
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2016.2618
• 发表日期: 2018
• 页码: 1693-1706
• 关键词: Behavioral economics; multiplicative compounding; skewness neglect; exponential growth bias

摘要

Multiplicative growth processes that are subject to random shocks often have an asymmetric distribution of outcomes. In a series of incentivized laboratory experiments, we showthat a large majority of participants either strongly underestimate the asymmetry or ignore it completely. Participants misperceive the spread of the outcome distribution to be too narrowband, and they estimate the median and the mode to lie too close to the center of the distribution, failing to account for the compound nature of average growth. The observed biases are measured irrespective to risk preferences and they appear under a variety of conditions. The biases are largely consistent with a behavioral model in which geometric growth is confused with linear growth. This confusion is a possible driver of investors' difficulties with real-world financial products like leveraged exchange- traded funds and retirement savings plans.