Time-inconsistent risk preferences in a laboratory experiment

K. Ko and Zhijian Huang ()

Review of Quantitative Finance and Accounting, 2012, vol. 39, issue 4, 484 pages

Abstract: We conduct an experiment to explore the time-consistency of risk preferences in a multi-period betting game. Specifically, subjects planned their contingent betting decisions in advance then played the game dynamically later to determine whether their respective decisions matched. We find that subjects took more risk than planned in their initial bet and after losses. In addition, this increased risk was associated with an increase in breakeven mental accounting. Our findings indicate that immediacy of outcomes can lead to impulsive risk-taking behavior and highlight the importance of precommitment to long-term financial planning. Copyright Springer Science+Business Media, LLC 2012

Keywords: Experimental economics; Time inconsistency; Risk preference; Mental accounting; Behavioral finance; C91; D81; G14 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s11156-011-0264-x

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