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Media type:
E-Article
Title:
The Realization Effect: Risk-Taking after Realized versus Paper Losses
Contributor:
Imas, Alex
Published:
American Economic Association, 2016
Published in:
The American Economic Review, 106 (2016) 8, Seite 2086-2109
Language:
English
ISSN:
0002-8282
Origination:
Footnote:
Description:
<p>Understanding how prior outcomes affect risk attitudes is critical for the study of choice under uncertainty. A large literature documents the significant influence of prior losses on risk attitudes. The findings appear contradictory: some studies find greater risk-taking after a loss, whereas others show the opposite—that people take on less risk. I reconcile these seemingly inconsistent findings by distinguishing between realized versus paper losses. Using new and existing data, I replicate prior findings and demonstrate that following a realized loss, individuals avoid risk; if the same loss is not realized, a paper loss, individuals take on greater risk.</p>