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Asymmetric detection of changes in volatility: Implications for risk perception.

Harvey, N; Twyman, M; Speekenbrink, M; (2017) Asymmetric detection of changes in volatility: Implications for risk perception. In: Annual Meetng of the Cognitive Science Society. (pp. pp. 2162-2167). Cognitive Science Society Green open access

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Abstract

Variance of the outcomes associated with an option often provides a measure of the riskiness of that option. Hence, it is important that organisms are able to detect any sudden changes in outcome variance. In Experiment 1, we presented people with graphs of share price time series or water level time series. In half the graphs, variance (financial or flooding risk) changed at some point. People were better at detecting increases than decreases in risk - maybe because it is more important to detect increases in danger than decreases in it. However, in Experiment 2, people were still better at detecting increases than decreases in variance even when those changes did not reflect altered levels of risk. Our findings may reflect the fact that the actual change in variance exceeds the change needed to identify a regime change in variance by a larger amount for upward than for downward changes.

Type: Proceedings paper
Title: Asymmetric detection of changes in volatility: Implications for risk perception.
Event: CogSci 2017: 39th Annual Meetng of the Cognitive Science Society, 26-29 July 2017, London, UK
Location: London
Dates: 16 July 2017 - 19 July 2017
ISBN-13: 978-0-9911967-6-0
Open access status: An open access version is available from UCL Discovery
Publisher version: https://mindmodeling.org/cogsci2017/papers/0412/in...
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Volatility; variance; risk; change detection; judgment
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences
UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences > Faculty of Brain Sciences
UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences > Faculty of Brain Sciences > Div of Psychology and Lang Sciences
UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences > Faculty of Brain Sciences > Div of Psychology and Lang Sciences > Experimental Psychology
URI: https://discovery.ucl.ac.uk/id/eprint/10054997
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