How Do Prior Outcomes Affect Risk Taking Behavior? A Cross-Country Experimental Analysis

34 Pages Posted: 31 May 2006 Last revised: 5 May 2008

See all articles by Jose L. B. Fernandes

Jose L. B. Fernandes

Universidade de Brasília

Juan Ignacio Peña

Universidad Carlos III de Madrid - Department of Business Administration

Benjamin M. Tabak

FGV/EPPG

Abstract

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

Fernandes, Jose Luiz Barros and Peña, Juan Ignacio and Tabak, Benjamin M., How Do Prior Outcomes Affect Risk Taking Behavior? A Cross-Country Experimental Analysis. Available at SSRN: https://ssrn.com/abstract=905205 or http://dx.doi.org/10.2139/ssrn.905205

Jose Luiz Barros Fernandes (Contact Author)

Universidade de Brasília ( email )

Campus Universitário Darcy Ribeiro
Brasília, Distrito Federal 70910-900
Brazil

Juan Ignacio Peña

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain
34 91 624 9625 (Phone)
34 91 624 9608 (Fax)

Benjamin M. Tabak

FGV/EPPG ( email )

SGAN Av. L2 Norte - Quadra 602 - Módulos A, B e C
Brasília, Rio de Janeiro 70830-051
Brazil

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