Comment on Oprea's latest AER paper
Wu, George
Hi all,
Daniel Banki, Uri Simonsohn, Robert Walatka and I have just completed a draft of a comment on Ryan Oprea’s latest AER paper.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5127515
Decisions under Risk Are Decisions under Complexity: Comment
Abstract
A re-analysis of Oprea (2024)'s data suggests that that measurement error produced by a confusing experimental design underlies the provocative claim that prospect theory's risk attitudes reflect mistakes arising from "complexity" rather than underlying preferences. In the reported studies, participants valued risky lotteries (e.g., a 10% chance of $25) and riskless "mirrors" of those lotteries (e.g., 10% of $25 for sure) with similar means, exhibiting the fourfold pattern and loss aversion for both. This equivalence, however, was driven by the 75% of subjects who erred on comprehension questions. These subjects produced excessively noisy data, with first-order stochastic dominance violation rates 5 to 10 times higher than in previous studies. The remaining 25% of subjects largely valued mirrors at their expected value and lotteries in line with prospect theory. Participants with a higher likelihood of understanding experimental instructions (e.g., students over online subjects, STEM majors, better-compensated, higher CRT scorers) behaved more in line with prospect theory for lotteries than mirrors.
Wu, George
Hi all,
We’ve posted a revision of our comment on Ryan Oprea’s AER paper to SSRN:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5127515
Decisions under Risk Are Decisions under Complexity: Comment
Abstract
Oprea (2024) argued that prospect theory’s risk attitudes reflect ''complexity'' rather than underlying risk preferences. A re-analysis reveals that this claim is driven by measurement error caused by a confusing experimental design. Participants valued risky lotteries and riskless ''mirrors'' similarly, but this was largely due to the 75% who failed comprehension checks. These subjects had noisy valuations and frequent dominance violations, which artifactually produce a fourfold pattern, loss aversion, and positive correlation between mirrors and lotteries. In contrast, participants who likely understood the task valued mirrors at expected value and lotteries in line with prospect theory.