Lawrence J. Jin
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View article: Adaptation Through Experience or Description? Evidence from an Experiment on Efficient Coding
Adaptation Through Experience or Description? Evidence from an Experiment on Efficient Coding Open
The principle of efficient coding implies that the perception of monetary payoffs is shaped by the decision maker’s prior beliefs. Specifically, payoffs that the decision maker expects to encounter more frequently should be perceived more …
View article: The Law of Small Numbers in Financial Markets: Theory and Evidence
The Law of Small Numbers in Financial Markets: Theory and Evidence Open
We build a model of the law of small numbers (LSN)-the incorrect belief that even small samples represent the properties of the underlying population-to study its implications for trading behavior and asset prices.In our model, a belief in…
View article: On the Source and Instability of Probability Weighting
On the Source and Instability of Probability Weighting Open
We propose and experimentally test a new theory of probability distortions in risky choice.The theory is based on a core principle from neuroscience called efficient coding, which states that information is encoded more accurately for thos…
View article: Replication Data for: 'Efficient Coding and Risky Choice'
Replication Data for: 'Efficient Coding and Risky Choice' Open
The data and programs replicate tables and figures from "Efficient Coding and Risky Choice", by Frydman and Jin. Please see the ReadMe file for additional details.
View article: Prospect Theory and Stock Market Anomalies
Prospect Theory and Stock Market Anomalies Open
We present a new model of asset prices in which investors evaluate risk according to prospect theory and examine its ability to explain 23 prominent stock market anomalies. The model incorporates all of the elements of prospect theory, acc…
View article: Prospect Theory and Stock Market Anomalies
Prospect Theory and Stock Market Anomalies Open
We present a new model of asset prices in which investors evaluate risk according to prospect theory and examine its ability to explain 23 prominent stock market anomalies.The model incorporates all the elements of prospect theory, takes a…
View article: Reflexivity in Credit Markets
Reflexivity in Credit Markets Open
Reflexivity is the idea that investors' biased beliefs affect market outcomes, and that market outcomes in turn affect investors' beliefs.We develop a behavioral model of the credit cycle featuring such a two-way feedback loop.In our model…
View article: A Model of Credit Market Sentiment
A Model of Credit Market Sentiment Open
We present a model of credit market sentiment in which investors form beliefs about future creditworthiness by extrapolating past defaults. Our key contribution is to model the endogenous two-way feedback between credit market sentiment an…
View article: Extrapolation and Bubbles
Extrapolation and Bubbles Open
We present an extrapolative model of bubbles.In the model, many investors form their demand for a risky asset by weighing two signals-an average of the asset's past price changes and the asset's degree of overvaluation.The two signals are …