Dynamic risk preferences under realized and paper outcomes

Kirby Nielsen

Journal of Economic Behavior & Organization, 2019, vol. 161, issue C, 68-78

Abstract: We conduct a large-scale test of dynamic risk preferences. While most of the literature on dynamic risk restricts attention to positively skewed gambles, subjects in our experiment tend to choose negatively skewed lotteries. This allows us to study dynamic risk preferences in an environment that the literature has not analyzed. We find evidence of the reinforcement effect—individuals take on more risk after a gain and take on less risk after a loss. Furthermore, we exogenously vary whether these outcomes are “realized” or on paper, according to the distinction put forth by Imas (2016). We find little difference in the responses to realized and paper outcomes in environments of negatively skewed risk.

Keywords: Dynamic risk; Reinforcement effect; History-dependent preferences; Prospect theory; Realization effect (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:161:y:2019:i:c:p:68-78

DOI: 10.1016/j.jebo.2019.03.016

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