On Taking a Skewed Risk More than Once

Sebastian Ebert and Mats Köster

American Economic Journal: Microeconomics, 2026, vol. 18, issue 2, 395-425

Abstract: Penny-picking refers to the often-observed phenomenon of repeatedly taking negatively skewed risks and seems directly at odds with evidence on (positive-)skewness-seeking as observed in static settings. We show that penny-picking may not only occur despite skewness-seeking, but—seemingly paradoxically—because of skewness-seeking. With sufficient time available, risks with arbitrary negative skewness can be gambled in such a way that, overall, skewness is positive. Therefore, classical behavioral theories like prospect theory straightforwardly explain penny-picking. More generally, we show that the versatile dynamics of skewness reconcile apparent preference reversals concerning the avoidance and acceptance of (skewed and non-skewed) risks.

JEL-codes: D81 D91 G11 G41 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1257/mic.20230279

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