Betting Your Favorite to Win: Costly Reluctance to Hedge Desired Outcomes

Carey K. Morewedge (), Simone Tang () and Richard P. Larrick ()
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Carey K. Morewedge: Questrom School of Business, Boston University, Boston, Massachusetts 02215
Simone Tang: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Richard P. Larrick: Fuqua School of Business, Duke University, Durham, North Carolina 27708

Management Science, 2018, vol. 64, issue 3, 997-1014

Abstract: We examined whether people reduce the impact of negative outcomes through emotional hedging —betting against the occurrence of desired outcomes. We found substantial reluctance to bet against the success of preferred U.S. presidential candidates and Major League Baseball, National Football League, National Collegiate Athletic Association (NCAA) basketball, and NCAA hockey teams. This reluctance was not attributable to optimism or a general aversion to hedging. Reluctance to hedge desired outcomes stemmed from identity signaling, a desire to preserve an important aspect of the bettor’s identity. Reluctance to hedge occurred when the diagnostic cost of the negative self-signal that hedging would produce outweighed the pecuniary rewards associated with hedging. Participants readily accepted hedges and pure gambles with no diagnostic costs. They also more readily accepted hedges with diagnostic costs when the pecuniary rewards associated with those hedges were greater. Reluctance to hedge identity-relevant outcomes produced two anomalies in decision making, risk seeking and dominance violations. More than 45% of NCAA fans in Studies 5 and 6, for instance, turned down a “free” real $5 bet against their team. The results elucidate anomalous decisions in which people exhibit disloyalty aversion, forgoing personal rewards that would conflict with their loyalties and commitments to others, beliefs, and ideals.

Keywords: hedging; self-signaling; risk; identity; emotions (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (7)

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