History-Dependent Risk Preferences: Evidence from Individual Choices and Implications for the Disposition Effect

• 成果类型: Article
• 署名作者: Andrikogiannopoulou, Angie; Papakonstantinou, Filippos
• 署名单位: University of London; King's College London
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhz127
• 发表日期: 2020
• 页码: 3674
• 关键词: expected-utility-theory; Favorite-longshot bias; prospect-theory; MARKET-EFFICIENCY; loss aversion; investors; probability; INFORMATION; BEHAVIOR; Heterogeneity

摘要

Using trading data from a sports wagering market, we estimate individuals' dynamic risk preferences within a prospect theory paradigm. This market's experimental-like features facilitate preference estimation, and our long panel enables us to study whether preferences vary across individuals and depend on earlier outcomes. Our estimates extend support for experimental findings-mild utility curvature, moderate loss aversion, and probability overweighting of extreme outcomes-to a market setting and reveal that preferences are heterogeneous and history dependent. Applying our estimates to a portfolio choice problem, we show prospect theory can better explain the prevalence of the disposition effect than previously thought.