Excess entry - or the high failure rate of market-entry decisions - is often attributed to overconfidence exhibited by entrepreneurs. We show analytically that whereas excess entry is an inevitable consequence of imperfect assessments of entrepreneurial skill, it does not imply overconfidence....

The mathematical representation of Brunswik's lens model has been used extensively to study human judgment and provides a unique opportunity to conduct a meta-analysis of studies that covers roughly five decades. Specifically, we analyze statistics of the lens model equation (Tucker, 1964)...

This chapter, originally written as a consequence of the terrorist attacks of September 11, 2001, provides an elementary introduction to the concepts of risk and insurance. The main difficulty lies in assessing probabilities to judge whether premiums are appropriate and, in particular, for...

Setting CEO compensation is a critical but difficult task. Thus, given the lack of transparency that frequently accompanies such decisions, it is important to know whether it is subject to bias. We document the presence of illusory correlation in CEO compensation. By this we mean the use of...

The importance of emotion in risk perception has been well documented in field and experimental studies. However, little is known about its role in everyday life. On thirty occasions over ten consecutive working days, ninety-four participants were prompted at random - via mobile telephones - to...

Whereas people are typically thought to be better off with more choices, studies show that they often prefer to choose from small as opposed to large sets of alternatives. We propose that satisfaction from choice is an inverted U-shaped function of the number of alternatives. This proposition is...

The experiential sampling method (ESM) was used to collect data from 74 part-time students who described and assessed the risks involved in their current activities when interrupted at random moments by text messages. The major categories of perceived risk were short-term in nature and involved...

We study gender differences in exiting competitive environments by exploiting the “naturalistic experiment” of a TV game show where participants were self-selected and there were no gender-specific constraints or discrimination. In multiple rounds, contestants answer general knowledge...

An important problem in descriptive and prescriptive research in decision making is to identify "regions of rationality," i.e., the areas for which simple, heuristic models are and are not effective. To map the contours of such regions, we derive probabilities that models identify the best of m...