Time-Inconsistent Risk Preferences in a Laboratory Experiment

21 Pages Posted: 18 Mar 2010

See all articles by K. Jeremy Ko

K. Jeremy Ko

Upstart

Zhijian (James) Huang

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

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2009

Abstract

We conducted an experiment to explore the time-consistency of risk preferences in a multi-period betting game. Specifically, subjects planned their contingent betting decisions in advance then played the game dynamically later to determine whether their respective decisions matched. We found that subjects took more risk than planned in their initial bet and after losses. In addition, this increased risk was associated with an increase in breakeven mental accounting. Our findings indicate that immediacy of outcomes can lead to impulsive risk-taking behavior and highlight the importance of precommitment to long-term financial planning.

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

JEL Classification: C91, D81, G14

Suggested Citation

Ko, Kwangmin and Huang, Zhijian, Time-Inconsistent Risk Preferences in a Laboratory Experiment (September 1, 2009). Available at SSRN: https://ssrn.com/abstract=1571723 or http://dx.doi.org/10.2139/ssrn.1571723

Kwangmin Ko

Upstart ( email )

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Zhijian Huang (Contact Author)

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

College of Business
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Rochester, NY 14623-5608
United States

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