This paper seeks to show that the potential to lose money as a result of theft has adifferent effect on an individual’s risk aversion than the potential to lose money due to chance.This would indicate that an individual’s risk aversion is inconsistent under different scenarios,contrasting current literature that assumes an individual’s risk aversion is independent of thesituation they are in. We attempt to show this through an experiment that frames loss in the formof theft. We use Amazon Mechanical Turk to gather responses to our experiment online. We findthat our treatment has no statistical effect, that people do not act in a way that is inconsistent withtheir risk aversion simply because of the possibility of theft.

Abstract: We present an experimental framework to study the extent to which failures of contingent thinking explain classic anomalies in a broad class of environments, including overbidding in auctions and the Ellsberg paradox. We study environments in which the subject’s choices affect payoffs only in some states, but not in others. We find that anomalies are in large part driven by incongruences between choices in the standard presentation of each problem and a ‘contingent’ presentation, which focuses the subject on the set of states where her actions matter. Additional evidence suggests that this phenomenon is in large part driven by people’s failure to put themselves in states that have not yet happened even though they are made aware that their actions only matter in those states.

We experimentally document persistence of suboptimal behavior despite ample opportunities to learn from feedback in a canonical updating problem where people suffer from base-rate neglect. Our results provide insights on the mechanisms hindering learning from feedback. Importantly, our results suggest mistakes are more likely to be persistent when they are driven by incorrect mental models that miss or misrepresent important aspects of the environment. Such models induce confidence in initial answers, limiting engagement with and learning from feedback. We substantiate these insights in an alternative scenario where individuals involved in a voting problem overlook the importance of being pivotal. (JEL D83, D91)