Behavioural economist Yi-Tsung (Hugo) Hsieh investigates how people deal with risk. His study, Integrating Risk in the Timing of Outcomes examines how people make decisions when they don’t know exactly when or what the outcomes will be. To investigate, the PhD candidate at the Department of Economics conducted a novel experiment through the Toronto Experimental Economics Laboratory (TEEL). Referring to existing literature, Hsieh tested four different models of decision making that have been put forward to explain the how people integrate or evaluate elements of risk in their decisions.

“The whole study is motivated primarily by two other studies,” Hsieh explained. “One found that people are risk-averse to time uncertainty. In economics, we already know people are risk-averse to outcome uncertainty. For example, if we toss a fair coin and I give you $100 for heads and $0 for tails, or you can get $50 for sure, most people prefer the certain outcome. There’s another study showing that people are also risk-averse to timing uncertainty. For example, if I need to borrow $100 from you, and I tell you I can pay it back any time between one month and one year from now, or I can pay it back in six months exactly, most people prefer the precise timing even if they forego the chance of getting paid back earlier. A more precise example would be, if I purchase some products from Amazon, and I can choose to pay extra fee to ensure the fixed delivery date, or simply have it delivered at some random timing, some people would be willing to pay extra even if the product may still come earlier without paying extra fee. Current economic models cannot explain this phenomenon.” [Read more…]