Time-Inconsistent Risk Preferences in a Laboratory Experiment

18 Pages Posted: 4 Feb 2008

See all articles by Zhijian (James) Huang

Zhijian (James) Huang

Rochester Institute of Technology (RIT) - Department of Accounting and Finance

K. Jeremy Ko

Upstart

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2008

Abstract

There is a substantial literature which studies time-inconsistent temporal preferences. We conducted an experiment to explore time-inconsistency in the other dimension of investment preferences, i.e., risk preferences. We had subjects play a multi-period betting game where they planned their betting decisions in advance and then played the game dynamically later to see if these decisions matched their plan. We found that subjects took more risk than planned in their initial bet and after a loss where this increase in risk-taking is associated with an increase in breakeven mental accounting. Our findings shed light on the conditions under which emotions exacerbate mental accounting and other behavioral biases.

Keywords: Experimental economics, Time inconsistency, Decision making, Risk preference, Mental accounting, Behavioral finance

JEL Classification: C91, D81, G14

Suggested Citation

Huang, Zhijian and Ko, Kwangmin, Time-Inconsistent Risk Preferences in a Laboratory Experiment (January 1, 2008). Available at SSRN: https://ssrn.com/abstract=1089526 or http://dx.doi.org/10.2139/ssrn.1089526

Zhijian Huang

Rochester Institute of Technology (RIT) - Department of Accounting and Finance ( email )

College of Business
105 Lomb Memorial Drive
Rochester, NY 14623-5608
United States

Kwangmin Ko (Contact Author)

Upstart ( email )

2950 S Delaware St #300
San Mateo, CA 94403
United States
2022570741 (Phone)

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