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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | A Model of Noisy Introspection |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Journal Title | Games and Economic Behavior |
| Geographical Reach | international |
| Volume | 46 |
| Number | 2 |
| Page Range | 365 - 382 |
| Date | 2004 |
| Abstract Text | We use a laboratory experiment to study the extent to which investors’ choices are affected by limited loss deduction in income taxation. We first compare investment behavior in the no tax baseline to a tax control setting, in which the income from investments is taxed. We find that investors significantly reduce their risk-taking as predicted by theory. Next we compare the baseline investment choices to choices under three different types of income taxation. We observe that risk-taking is significantly increased with partial and with capped loss deduction, but is unaffected by a tax system that allows no loss deduction. Since in all these treatments the after tax outcomes of the prospects were identical, we conjecture that investors have a positively biased perception of partial and capped loss deduction that promotes their willingness to take risks. |
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