How Do Prior Outcomes Affect Risk Taking Behavior? A Cross-Country Experimental Analysis
34 Pages Posted: 31 May 2006 Last revised: 5 May 2008
Recent literature has advocated that risk-taking behavior is influenced by prior monetary gains and losses. On one hand, after perceiving monetary gains, people are willing to take more risk (house-money effect). Another stream of the literature, based on prospect theory and loss aversion, suggests that people are risk averse/seeking in the gain/loss domain. The objective of this paper is twofold: first to clarify the previous contradiction and second to verify the existence of myopic loss aversion across countries. We found that loss aversion is the dominant effect and also report the existence of myopic loss aversion across countries.
Keywords: House Money, Myopic Loss Aversion, Behavioral Biases
JEL Classification: C91, D81
Suggested Citation: Suggested Citation