Nov. 30th, Chew Soo Hong, Ph.D. – How does familiarity breed investment?

Abstract: In his 1921 Treatise on Probability, John Maynard Keynes offered a striking hypothesis about decision making under uncertainty: “… if two probabilities are equal in degree, ought we, in choosing our course of action, to prefer that one which is based on a greater body of knowledge?” This hypothesis has led to the discovery of two important decision making predispositions – ambiguity aversion, discussed in Daniel Ellsberg’s seminal paper in 1961, and familiarity bias, articulated in several papers by Amos Tversky and his coauthors in the 90’s. The latter papers further suggest that familiarity bias may underpin the home market bias puzzle, first documented by French and Poterba (1991) and corroborated in the works of Huberman (2001) and Coval and Moskowitz (2002) which provide evidence of a domestic home market bias favoring shares in companies that are geographically proximate. This talk will discuss findings from an experimental study of familiarity bias using molecular genetics and neuroimaging to establish a gene-brain-behavior link for a decision making disposition that may impact behavior at the level of financial markets.

Bio: Chew Soo Hong is professor at the National University of Singapore (NUS) and adjunct professor at the Hong Kong University of Science and Technology (HKUST). Chew received his Ph.D. in interdisciplinary studies from the University of British Columbia and has previously taught at the University of California, Irvine, Johns Hopkins University and University of Arizona. He is among the pioneers in axiomatic non-expected utility models and is a fellow of the Econometric Society which awarded him the Leonard J. Savage thesis prize. Chew has directed HKUST’s center for Experimental Business Research, inaugurated by Vernon Smith in 1998, and is co-director of NUS’ lab for Behavioral x Biological Economics and the Social Sciences which aims to bring together genomics, neuroscience, decision theory, and behavioral and experimental economics to seek a deeper understanding of decision making at the neural and molecular levels. Chew has published in well regarded journals such as Econometrica, Journal of Economic Theory, and Review of Economic Studies as well as more biology oriented ones including PRSB, Neuron, and PLoS ONE.

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