Doron Sonsino

Doron Sonsino
Cyprus International Institute of Management

About

57
Publications
5,790
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774
Citations
Introduction
financial decision, experimental economics

Publications

Publications (57)
Article
Full-text available
The field-based experimental approach was utilized to collect zero-investment portfolios from more than 100 competent investors at the peak of the financial crisis. The average annual return on 117 arbitrage portfolios was 5.2% with 55% profitability rate, but prior self-confidence strongly correlates with eventual performance with yearly returns r...
Article
Full-text available
The return on composite investment instruments takes the form of weighted-average, derived from two economic indicators or more. Three experiments illustrate that prospective investors tend to valuate composites "by-tranche", consistently violating the premise of reduction. Valuation-by-tranche shows for uncertain and risky composites and reflects...
Article
Full-text available
The close to zero interest rates past the economic crisis open possibility to directly test for loss aversion in framed field structured investment tasks. We use a Web-survey platform to compare the willingness to invest in LOSS-GAIN deposits that pay positive return G in favorable market conditions, but bring a loss L in the complementary states,...
Article
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The growing market for retail structured investment products and empirical evidence for excessive pricing of such products raise the hypothesis that private investors show increased risk appetite in structured investment contexts. A two-stage framed field experiment building on cumulative prospect theory is designed to test this hypothesis. Subject...
Article
Full-text available
While finance studies suggest that forecast-confidence motivates trading, the experimental findings regarding the confidence-trading links are inconclusive and statistically weak. Attempting to bridge the gap, we modify the standard interval forecasting task to measure forecast-confidence more directly. The adapted task is utilized to test the conf...
Preprint
Full-text available
Three return forecasting experiments and a panel of more than 14,000 CFOs' forecasts of the S&P 500 annual return suggest that forecast confidence decreases as the forecasts diverge from zero, in the positive or negative direction. The decrease in confidence reflects in longer forecast intervals, weaker belief in the accuracy of the forecasts, and...
Preprint
Four experiments are presented that clarify the impact of experience on the way people use valuations. In each of the 100 trials of Study 1, participants were asked to choose between the status quo and an unknown binary lottery based on valuations by two expert systems: a well-calibrated “expert” reporting the expected values, and an expert that ig...
Preprint
Full-text available
Risk receptiveness statements are increasingly applied in experiments and surveys to control for individual risk attitudes, and the evidence regarding the predictive power of such statements for incentivized risk-taking is accumulating. We report the results of framed field experiments showing that stated risk preference (SRP) links with increased...
Preprint
Full-text available
The individual willingness to trust human receivers is compared to the inclination to take lottery risk in six distinct scenarios, controlling the return distributions. Trust shows significantly smaller responsiveness to return expectations compared to parallel risk-taking, and paired comparisons reveal that the investors sacrifice 5% of the expect...
Article
Full-text available
Investment beliefs, serving as a bridge between high-level objectives and practical decision making, are increasingly implemented in the investment industry. The present web-based study compares the beliefs of Swedish professional (N=64) and non-professional (N=278) investors, testing the links between investment beliefs and portfolio risk-taking i...
Article
Full-text available
Interval forecasting tasks are commonly used to test for forecast overconfidence. Pointing at deficiencies of the methodology, we develop a modified task, asking subjects to provide point predictions for future returns and assess the likelihood of given length intervals around their estimates. The difference between the subjective likelihood assess...
Article
Full-text available
Previous research suggests that human reaction to risky opportunities reflects two contradicting biases: “loss aversion”, and “limited level of reasoning” that leads to overconfidence. Rejection of attractive gambles is explained by loss aversion, while counterproductive risk seeking is attributed to limited level of reasoning. The current research...
Article
Full-text available
A field experiment tested if the crisis experience and subsequent turbulence have turned the extreme case predictions of skilled investors more rational. Unrealistic optimism still manifested at 3 distinct levels, while calibration rates could double or triple if respondents were adapting to the realized fluctuations in recent series. The spread be...
Article
Full-text available
A field experiment was carefully designed to collect arbitrage portfolios from competent investors in the midst of the financial crisis. The average return on 117 annual portfolios was 5.2% with 55% profitability rate. Prior self confidence regarding profitability emerges as the strongest predictor of yearly performance, and returns increase to 26%...
Article
Full-text available
The experimental approach was applied to test the value of historical return series in technical prediction. Return sequences were randomly drawn cross-sectionally and over time from S&P500 records and participants were asked to predict the 13th realization from 12 preceding returns. The hypothesis that predictions (nominal or real) are randomly as...
Article
Sebenius and Geanakoplos (1983) have proven the "impossibility of zero-sum betting" in a simple non-strategic model. We study a dynamic game of incomplete information that extends the Sebenius and Geanakoplos framework, and show that the no-betting result carries over to the extended game.
Article
Full-text available
The field experimental approach was utilized to collect expectations arbitrage portfolios from competent investors in late 2008 where stock prices shrunk by 50%. Arbitrage positions were closed after 3 months and the 4-factor model was applied to characterize strategies and derive risk-adjusted returns. In line with classic psychological judgment s...
Article
Full-text available
An "unprocessed risk" is collection of simple lotteries with a reduction-rule that describes the actual-payoff to the decision-maker as a function of realized lottery outcomes. Experiments reveal that the willingness to pay for unprocessed risks is consistently biased towards the payoff-level in the unprocessed representation. The "anchoring-to-fra...
Article
Full-text available
Three experiments are designed to test if the level of irrelevant prizes in the menu has a positive (assimilation) or negative (contrast) effect on the perceived valuation of target objects. Familiar field prizes and binary lotteries over such prizes are placed within “more-expensive” and “less-expensive” menus. Subjects fill-in a sequence of binar...
Article
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We study the effect of variation in correlation on investment decision in an experimental two asset application. Comparison of allocations across problems suggests that subjects neglect probabilistic information on the joint distribution of returns and base their allocations on the observed return levels for the two assets. When asked to predict fu...
Article
The experimental approach is applied to explore the value of unidentified historical information in stock-return prediction. Return sequences were randomly drawn cross section and time from historical S&P500 data. Subjects were requested to predict returns or select stocks from 12 preceding realizations. The hypothesis that predictions are randomly...
Article
Full-text available
For many years experimental observations have raised questions about the rationality of economic agents--for example, the Allais Paradox or the Equity Premium Puzzle. The problem is a narrow notion of rationality that disregards fear. This article extends the notion of rationality with new axioms of choice under uncertainty and the decision criteri...
Article
We explore the effects of social distance in experiments conducted over the Internet on three continents, in classroom laboratory sessions conducted in Israel and Spain, and in computer sessions pairing participants from different states, one in Texas and the other in California. Our design elicits individual behavior profiles over a range of conti...
Article
Full-text available
We run an experiment where 97 subjects could retrieve records of completed past auctions before placing their bids in current one-bid, two-bid, and auction-selection games. Each subject was asked to participate in 3 current auctions; but could retrieve up to 60 records of completed (past) auctions. The results reveal a positive relation between the...
Article
Full-text available
The paper focuses on a comparative investigation of the standard one-bid first-price auction and a corresponding two-bid auction where each buyer may place two bids: a high-bid and a low one and the winner pays his low-bid if this was higher than all other bids. We characterize the equilibria of the two mechanisms and prove some results on the rank...
Article
Full-text available
We explore the effects of social distance in experiments conducted over the Internet on three continents, in classroom laboratory sessions conducted in Israel and Spain, and in computer sessions pairing participants from different states—one in Texas and the other in California. Our design elicits individual behavior profiles over a range of contin...
Article
Full-text available
The repeated play of an asymmetric Battle of the Sexes is analyzed from the perspective of “strategic pattern recognition.” Convergence to equilibrium patterns (in finite histories) and related concepts like breaking-an-equilibrium-pattern are defined and applied to the data. More than half of 202 pairs of subjects are characterized as weakly conve...
Article
Empirically, mutual fund flows depend on past performance. It is unclear, however, whether this behavior is rational. Using the experimental approach we analyze behavior without confronting measurement problems of real data. We detect two anomalies: "Absolute Performance Effect" -- investors' tendency to delegate money to a fund increases with perf...
Article
We present experimental evidence suggesting that human subjects dislike complexity in choice with uncertainty. Our results suggest that the probability of choosing a given alternative decreases with the relative complexity of that alternative. Complexity increases the noise in the choice process and the chances that the (otherwise) inferior alterna...
Article
Full-text available
We present the results of a comparative experimental study of the evaluation of simple lotteries and call/put/insurance options on these lotteries. The main findings and con- clusions are: (a) The observed bidding patterns depend on the type of asset under evaluation. In particular, subject behavior when buying or selling a basic lottery seems much...
Article
We explore the effects of social distance on reciprocal behavior in an experiment conducted over the Internet on three continents and in classroom laboratory sessions conducted in Israel and Spain. Our design elicits individual behavior profiles over a range of contingencies, enabling us to identify heterogeneity among our participants. We find tha...
Book
We compare the standard one-bid first price auction to a corresponding two–bid first price auction where each buyer may place two bids: a high bid and a low one and the winner pays his low bid if this was higher than all other bids. We characterize the equilibria of the two mechanisms and prove some results on the ranking of revenues and expected u...
Article
We report the results of an experiment in which 135 students were asked to bid buying prices for five simple lotteries. 65 subjects were asked to complete the evaluation forms in class; the other 70 subjects were asked to complete the questionnaire within 24 hours on the Web. The subjects for both groups were carefully selected to avoid a possible...
Article
Full-text available
Experimental studies of risk and time preference typically focus on one of the two phenomena. The goal of this paper is to investigate the (possible) correlation between subjects' attitude to risk and their time preference. For this sake we ask 61 subjects to price a simple lottery in three different scenarios. At the first, the lottery premium is...
Article
We explore the effects of social distance on reciprocal behavior in an experiment conducted over the Internet on three continents and in classroom laboratory sessions conducted in Israel and Spain.
Article
Full-text available
Desire for flexibility suggests that the value of a choice-menu should increase with the number of options included. Complexity-aversion on the other hand may imply that the value of a menu decreases with its cardinality. We present the results of an experiment where 5 groups of subjects were asked to evaluate saving plans that let the investor cho...
Article
We present experimental evidence suggesting that human subjects penalize lotteries for complexity. Our results contradict the assumption that human agents follow the discounted expected utility model in multi-period choice with uncertainty. In particular, we show that the buying price offered for an inferior, simple multi-period lottery may sometim...
Article
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We define a notion of delta-variance maximization and show it implies epsilon-proximity in expactations.
Article
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Assume that two risk neutral agents with asymmetric information simultaneously expect a gain from zero-sum betting. Geanakoplos and Sebenius (1983) (henceforth GS) consider the case where the agents may re-evaluate the profitability of betting successively before the payments are realized. They prove that one of the players must reject the proposed...
Article
Full-text available
The aim of this paper is to present the new theory called “inductive game theory”. A paper, published by one of the present authors with A. Matsui, discussed some part of inductive game theory in a specific game. Here, we will give a more developed discourse of the theory. The paper is written to show one entire picture of the theory: From individu...
Article
Full-text available
The "impossibility of speculations" result implied by some models of information economics seems to follow directly from the strong assumptions concerning the information structure in the relevant models. This paper investigates whether the impossibility result hold when some "noise" is introduced into the information system in a "no trade" model....
Article
Full-text available
We present experimental evidence suggesting that insurance-holders ignore the possibility of damage-recurrence when deciding whether to submit a claim for a current small loss. The neglect results in successive claiming for current small damage-levels. When the probability of damage-recurrence is disclosed, subjects increase the cutoff-damage for s...

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