EconPapers    
Economics at your fingertips  
 

What makes depression babies different: Expectations or preferences?

Tomás Lejarraga, Jan K. Woike and Ralph Hertwig

Journal of Behavioral and Experimental Finance, 2024, vol. 44, issue C

Abstract: People who have experienced a financial crisis have been found to take less financial risk in their future lives. What causes this behavior? Have “depression babies” become more risk averse or are they more pessimistic about future market returns, that is, a preference or a belief change? To find out, we manipulated how experimental investors learned about a crisis – by experiencing it first-hand or by learning about it from graphs – and examined their subsequent propensity to take financial risk. Investors additionally revealed their expectations about the market by making incentivized predictions about its future value. Our findings replicated the depression-babies effect: On aggregate, people who experienced an experimental financial shock took less financial risk than people who learned about it from a symbolic description. Importantly, these aggregate changes in behavior were not accompanied by discernible changes in expectations or in risk preferences. Although we do not observe a clear causal link between risk taking and concurrent changes in belief or preference, linear models suggest that risk taking in the experiment has a significant relationship with elicited risk preferences but not with elicited expectations.

Keywords: Depression babies; Description–experience gap; Expectations; Risk preference; Hot-stove effect (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2214635024001138

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:44:y:2024:i:c:s2214635024001138

DOI: 10.1016/j.jbef.2024.100998

Access Statistics for this article

Journal of Behavioral and Experimental Finance is currently edited by Michael Dowling and Jürgen Huber

More articles in Journal of Behavioral and Experimental Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-05-25
Handle: RePEc:eee:beexfi:v:44:y:2024:i:c:s2214635024001138