This Time Is Different: On Similarity and Risk Taking After Experienced Gains and Losses

43 Pages Posted: 24 Nov 2020 Last revised: 1 Jun 2021

See all articles by Steve Heinke

Steve Heinke

University of Basel

Adrian Leuenberger

University of Basel

Jörg Rieskamp

University of Basel

Date Written: May 31, 2021

Abstract

How do past experiences of losses or gains affect risk taking? Research shows inconsistent effects of prior outcomes on risk taking. To resolve these inconsistencies we propose a similarity-based theory of how past outcomes could affect decisions: Only past situations similar to the current situation affect decisions. Consistent with the similarity theory, the results of a preregistered experiment show that the less similar a prior decision situation is on task-relevant dimensions, the weaker its effect on the current decision. In sum, incorporating similarity into decision-making theory provides a cognitively based explanation of how past experiences influence current decisions under risk.

Keywords: similarity, categorization, sequential risk taking, house money, gambling for resurrection, realization effect

JEL Classification: D01, D11, D14, D81, D90, G11

Suggested Citation

Heinke, Steve and Leuenberger, Adrian and Rieskamp, Jörg, This Time Is Different: On Similarity and Risk Taking After Experienced Gains and Losses (May 31, 2021). Available at SSRN: https://ssrn.com/abstract=3691829 or http://dx.doi.org/10.2139/ssrn.3691829

Steve Heinke (Contact Author)

University of Basel ( email )

Missionsstrasse 62a
Basel, 4055
Switzerland

Adrian Leuenberger

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

Jörg Rieskamp

University of Basel

Petersplatz 1
Basel, CH-4003
Switzerland

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