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The effect of paper versus realized losses on subsequent risk-taking: Field evidence from casino gambling

Philippe Meier (), Raphael Flepp (), Maximilian Rüdisser () and Egon Franck ()
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Philippe Meier: Department of Business Administration, University of Zurich
Raphael Flepp: Department of Business Administration, University of Zurich
Maximilian Rüdisser: Department of Business Administration, University of Zurich

No 385, Working Papers from University of Zurich, Department of Business Administration (IBW)

Abstract: In this paper, we test the realization effect, i.e., that risk-taking increases after a paper loss, whereas risk-taking decreases after a realized loss, using gambling data from a real casino. During a particular casino visit, losses are likely perceived as paper losses because the chance to offset prior losses remains effective until leaving the casino. However, when casino customers leave the casino, the final account balance is realized. Using individual-level slot machine gambling records, we find that risk-taking after paper losses increases during a visit and that this effect is more pronounced for larger losses. Conversely, risk-taking across multiple visits is not altered if the realized losses are comparatively small, whereas risk-taking is reduced if realized losses are comparatively large.

Keywords: Market decision making; realization effect; risk behavior; loss; field analysis (search for similar items in EconPapers)
JEL-codes: D12 D14 D81 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2020-01
New Economics Papers: this item is included in nep-rmg
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