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The Psychology of Tail Events: Progress and Challenges

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  • Nicholas Barberis

Abstract

Over the past decade there has been a surge of interest in "tail events," or rare, high-impact events. In this article, I start by summarizing some recent progress in our understanding of the psychology of tail events. I suggest that much of this progress has centered on the concept of "probability weighting" and, in particular, on applications of this concept in various fields of economics. I then describe some major open questions in this area.

Suggested Citation

  • Nicholas Barberis, 2013. "The Psychology of Tail Events: Progress and Challenges," American Economic Review, American Economic Association, vol. 103(3), pages 611-616, May.
    • Handle: RePEc:aea:aecrev:v:103:y:2013:i:3:p:611-16
    Note: DOI: 10.1257/aer.103.3.611
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    References listed on IDEAS

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    3. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    4. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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