How Close is Too Close: The effect of near losses on subsequent risk taking

31 Pages Posted: 6 Apr 2021

See all articles by Stephanie Permut

Stephanie Permut

Carnegie Mellon University

Julie S. Downs

Carnegie Mellon University

Silvia Saccardo

Carnegie Mellon University, Department of Social and Decision Sciences

George Loewenstein

Carnegie Mellon University - Department of Social and Decision Sciences

Date Written: April 3, 2021

Abstract

This paper examines how individuals adjust their risk taking in response to close calls with undesirable outcomes (near losses) and explores the possible mechanisms, cognitive and emotional, that drive these effects. We present four MTurk experiments (N=6,191) that vary people’s proximity to losses and measure the extent of their behavioral adjustment. We find that closeness to undesirable outcomes affects later risk taking: Near misses substantially decrease risk taking, and far misses substantially increase risk taking relative to no feedback. We further find that these effects persist following a 1-hour delay and are thus not likely to be caused by transient shifts in affect. Finally, we show that closeness to undesirable outcomes leads to changes in estimates of the likelihood of similar outcomes in the future, and that this shift explains behavioral adjustment in our risk-taking task. Taken together, our findings support a cognitive rather than emotional account of near-miss effects.

Keywords: near misses, decision making, risk, luck

Suggested Citation

Permut, Stephanie and Downs, Julie S. and Saccardo, Silvia and Loewenstein, George F., How Close is Too Close: The effect of near losses on subsequent risk taking (April 3, 2021). Available at SSRN: https://ssrn.com/abstract=3819009 or http://dx.doi.org/10.2139/ssrn.3819009

Stephanie Permut (Contact Author)

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Julie S. Downs

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Silvia Saccardo

Carnegie Mellon University, Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States

George F. Loewenstein

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States
412-268-8787 (Phone)
412-268-6938 (Fax)

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