How do prior outcomes affect risk attitude?

Weber, Martin ; Zuchel, Heiko

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URL:	https://ub-madoc.bib.uni-mannheim.de/277
URN:	urn:nbn:de:bsz:180-madoc-2771
Document Type:	Working paper
Year of publication:	2003
Publication language:	English
Institution:	Business School > Sonstige - Fakultät für Betriebswirtschaftslehre
MADOC publication series:	Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Working Papers
Subject:	330 Economics
Classification:	JEL: C 91 ,
Subject headings (SWD):	Risikoverhalten
Abstract:	Modelling choice in multi-period asset pricing requires assumptions about how prior outcomes affect risk attitude. We present an experimental study of the influence of prior outcomes on risky choice. We document a strong framing effect. By manipulating the presentation format of the decision problem we can induce increased risk taking following a gain, i.e. the house-money effect (Thaler and Johnson 1990) or, alternatively, increased risk taking following a loss, i.e. escalation of commitment (Staw 1976). Maximization of a value function from prospect theory can explain some of our results. Escalation of commitment in our experiment does not appear to be driven by a need to justify or rationalize the initial decision.
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Weber, Martin ; Zuchel, Heiko (2003) How do prior outcomes affect risk attitude?

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