Jiakun Zheng

Faculty ,  Centrale Méditerranée

Econometrics, Finance and mathematical methods
Zheng
Status
Assistant professor
Research domain(s)
Behavioral and experimental economics, Environmental economics, Finance
Thesis
2020, Toulouse School of Economics
Contact
jiakun.zheng[at]centrale-med.fr
Address

AMU - AMSE
5-9 Boulevard Maurice Bourdet, CS 50498
​13205 Marseille Cedex 1

Website
https://sites.google.com/view/jiakun-zheng/
Abstract This study examines the saving behavior of a regret-averse agent within a two-period model. The analysis demonstrates that disproportionate aversion to large regrets induces a pseudo effect resembling probability weighting. In particular, the agent assigns greater weight to states in which significant saving regret might arise. As a result, regret aversion encourages precautionary saving when income shocks are sufficiently negatively skewed but diminishes or even reverses precautionary saving when they are not. The exact skewness condition under which the agent saves more than a discounted utility counterpart is characterized in the context of small binary risks. Notably, this condition becomes more restrictive as the traditional measure of absolute prudence increases. A simulation involving large income shocks further confirms that the qualitative insights derived from the small-risk case extend to broader scenarios, highlighting that regret aversion can substantially influence saving behavior when income risks are skewed.
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Abstract 101 real couples participated in a controlled experimental risk-taking task involving variations in household and individual income risks, while controlling for ex-ante income inequality. Our design disentangles the effects of household risk, intra-household risk inequality, and ex-post payoff inequality. We find that most couples (about 79%) pooled their risk at the household level when risks were borne symmetrically, but a significant proportion of couples (about 36%) failed to do so when individual risks were borne asymmetrically. Additionally, within the scope of the control variables we have utilized, we find that intra-household risk inequality has a larger impact on non-married couples compared to married ones. These results remain robust when the analysis is limited to couples in which both spouses are risk-averse. Lastly, we find that preferences for household efficiency are significantly correlated across both certain and risky situations. However, couples consisting of two income-maximizing spouses do not show greater aversion to risk inequality compared to couples with other compositions.
Keywords Experiment, Household risk taking, Inequality
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Abstract Narrow bracketers who are myopic in specific decisions would fail to consider preexisting risks in investment and neglect hedging opportunities. Growing evidence has demonstrated the relevance of narrow bracketing. We take a step further in empirical investigation and study individual heterogeneity in narrow bracketing. Specifically, we use a lab experiment in investment and hedging that elicits subjects' preferences on rich occasions to uncover the individual degree of narrow bracketing without imposing distributional assumptions. Combining prospect theory and narrow bracketing can explain our findings: Subjects who invest more also insure more, and subjects insure significantly less in the loss domain than in the gain domain. More importantly, we show that the distribution of the individual degree of narrow bracketing is skewed at two extremes, yet with a substantial share of people in the middle who partially suffer from narrow bracketing. Neglecting this aspect, we would overestimate the severity of narrow bracketing and misinterpret its relation with individual characteristics.
Keywords Hedging, Narrow bracketing, Prospect theory, Subject heterogeneity
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Abstract Allowing risk preferences to depend on the correlation between lottery outcomes can explain behavioral anomalies, while empirical evidence is limited and mixed. Using the framework of correlation sensitivity, we classify preferences into three types and adapt a choice task to categorize subjects. Experiments show that aggregate choices exhibit correlation sensitivity opposite to regret and salience theory predictions. Clustering analysis reveals that a correlation-sensitive minority drives these patterns, while most subjects display no sensitivity. We further disentangle deliberate within-state comparisons from incidental payoff comparisons, finding that both contribute to correlation sensitivity, with deliberate comparisons exerting slightly stronger effects.
Keywords Regret theory, Salience theory, Experiment, Correlation effects, Choice under risk
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Abstract Lack of high-quality value per statistical life (VSL) studies in low- and middle-income countries have been recognized by scholars and analysts in the benefit-cost analysis field for decades. However, progress has been slow in addressing it. We estimated VSL in China using a stated-preference survey in the context of reducing mortality risks associated with COVID-19. The survey was administered in seven cities across China in 2022 with a purposive sampling approach, and consistency checks at different levels of stringency regarding willingness to pay (WTP) for mortality risk reductions of different magnitudes were used to screen respondents. The estimated VSL ranges from 8.0 million to 10.3 million Chinese Yuan, which is higher than previous estimates. Also previous studies found much higher VSL estimates from a subsample obtained with more stringent consistency check requiring that WTP be approximately proportional to the magnitude of mortality risk reduction, we did not find such a difference with our dataset. In addition, based on our anlaysis, respondents in first-tier cities such as Beijing, Shanghai and Guangzhou have higher VSL than those in second-tier cities such as Changchun, Chengdu, Wuhan and Xi’an; the VSL-age relationship shows a U-shaped pattern; and the collective experience of city lockdown has a negative impact on VSL. Other factors which were found to influence VSL include education, sector of work, health status, risk perception, behaviors (physical exercises, wearing face masks, getting vaccinated), knowledge, political identity, and trust in government.
Keywords Willingness to pay, Mortality risk reductions, Value per statistical life VSL, Value per statistical life, Vsl, COVID-19
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Abstract This paper utilizes data from the 2017 China Household Finance Survey (CHFS) to examine the impact of loss aversion on individuals' willingness to relocate due to environmental concerns. We find that individuals who are more loss averse are less likely to consider moving, resulting in what is called the status-quo bias. In addition, we find that individuals with stronger family ties as measured by the number of siblings and higher household fixed assets are more susceptible to these effects, implying that they are more attached to their current place of residence and less likely to relocate.We thank Ling Zhou and one anonymous referee for constructive comments.
Keywords Family ties, Status-quo bias, Loss aversion, Willingness to relocate
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Abstract This paper considers a risk-neutral insurer and a risk-averse individual who bargain over the terms of an insurance contract. Under asymmetric Nash bargaining, we show that the Pareto-optimal insurance contract always contains a straight deductible under linear transaction costs and that the deductible disappears if and only if the deadweight cost is zero, regardless of the insurer’s bargaining power. We further find that the optimality of no insurance is consistent across all market structures. When the insured’s risk preference exhibits decreasing absolute risk aversion, the optimal deductible and the insurer’s expected loss decrease in the degree of the insured’s risk aversion and thus increase in the insured’s initial wealth. In addition, the effect of increasing the insurer’s bargaining power on the optimal deductible is equivalent to a pure effect of reducing the initial wealth of the insured. Our results suggest that the well-documented preference for low deductibles could be the result of insurance bargaining.
Keywords Asymmetric Nash bargaining, Risk sharing, Deductible insurance, Wealth effect, Overinsurance
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Abstract Salience theory relies on the assumption that not only the marginal distribution of lotteries, butalso the correlation of payoffs across states impacts choices. Recent experimental studies on saliencetheory seem to provide evidence in favor of such correlation effects. However, these studies failto control for event-splitting effects (ESE). In this paper, we seek to disentangle the role of corre-lation and event-splitting in two settings: 1) the common consequence Allais paradox as studiedby Bordalo et al. (2012), Bruhin et al. (2022), and Frydman and Mormann (2018); 2) choicesbetween Mao pairs as studied by Dertwinkel-Kalt and K¨oster (2020). In both settings, we findevidence suggesting that recent findings supporting correlation effects are largely driven by ESE.Once controlling for ESE, we find no consistent evidence for correlation effects. Our results thusshed doubt on the validity of salience theory in describing risky behavior.
Keywords Salience, Event-splitting, Probability weighting, Concordance, Experiment
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Abstract We surveyed economists’ attitudes toward adjusting discount rates to the risk profile of public programs. Three-quarters of respondents recommend to use project-specific discount rates. For example, on average, respondents discount railway infrastructures more than hospitals and climate mitigation. But the degree of discount discrimination between distinct risk profiles of different projects is fairly limited in our sample given the differences in risk profiles for these projects. Economic experts thus penalize risky public projects far less than financial markets penalize private investments. We call this the ”discount premium puzzle”. Finally, among experts in favor of a single discount rate, there is no consensus on whether it should be based on the average cost of capital in the economy, the sovereign borrowing cost, or the Ramsey rule, which gives rise to disagreement over the level of the recommended discount rate.
Keywords Risk premium, Project-specific discount rate, Survey evidence
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Abstract Prior work finds that individuals are often less prosocial when they can exploit uncertainty as an excuse. In contrast to prior work that largely explores the relevance of excuses in the gain domain, this paper investigates the relevance of excuses in both the loss and gain domains. In our laboratory experiment, participants evaluated risky payoffs for themselves and their partners in either the gain or loss domain, with or without interpersonal trade-offs. We found that participants exhibited excuse-driven risk behaviors in both domains. We also documented significant individual heterogeneity in the degree of excuses, influenced by factors such as individuals’ risk preferences, beliefs about others’ risk preferences, and the size of the risk.We present a self-signaling model that incorporates self-image concerns to explain our experimental findings. We show that excuse-driven risk behavior arises because people misattribute their selfish behavior to risk preferences rather than a reduced level of altruism.
Keywords Risk preferences, Self-image, Misattribution, Experiment, Prosocial behavior
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