How Do Prior Gains and Losses Affect Subsequent Risk Taking? New Evidence from Individual-Level Horse Race Bets

• 成果类型: Article
• 署名作者: Suhonen, Niko; Saastamoinen, Jani
• 署名单位: University of Eastern Finland
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2016.2679
• 发表日期: 2018
• 页码: 2797-2808
• 关键词: break-even effect; horse race betting; house money effect; prospect theory; sequential risky decisions

摘要

Many empirical studies focusing on how prior outcomes affect subsequent risk taking report conclusions that appear mutually contradictory. While some studies document increased risk taking after gains and risk aversion after losses, others report the opposite. This paper contributes to this literature by investigating horse race bettors' sequential risky decisions using individual-level data. A horse race betting market is a laboratory-like environment and can be used to analyze behavioral patterns associated with decision making under risk. We find evidence for (i) the house money effect as bettors take riskier wagers after gains and mostly spend the money they have won; (ii) risk aversion after prior losses, which we label a playing safe effect; and (iii) a preference for breakeven. Contrary to the widely held conception in the empirical literature, our findings suggest that the break-even effect does not necessarily imply an increased preference for riskier bets because bettors may seek to break even with less risky wagers.