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Good luck, bad luck, and risk taking: Evidence from a natural experiment in the housing lottery

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  • Li, Feng
  • Wang, Xintao
  • Lu, Ping

Abstract

This study investigates whether random shock signals affect individuals’ investment decisions of risk taking using a unique data set from the housing lottery in Hangzhou, a major city in eastern China. New housing projects in Hangzhou are sold to individuals through housing lotteries with price caps. Our empirical evidence suggests that individuals’ subsequent housing lottery decisions are significantly affected by their prior lottery results. After experiencing better lottery outcomes, which are purely driven by good luck, they tend to participate in hot projects with low lottery winning rates, taking more risks, and vice versa. However, this effect diminishes over time.

Suggested Citation

  • Li, Feng & Wang, Xintao & Lu, Ping, 2022. "Good luck, bad luck, and risk taking: Evidence from a natural experiment in the housing lottery," Economics Letters, Elsevier, vol. 218(C).
    • Handle: RePEc:eee:ecolet:v:218:y:2022:i:c:s0165176522002580
    DOI: 10.1016/j.econlet.2022.110740
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    References listed on IDEAS

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    1. Uri Gneezy & Jan Potters, 1997. "An Experiment on Risk Taking and Evaluation Periods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 631-645.
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    3. Gao, Huasheng & Shi, Donghui & Zhao, Bin, 2021. "Does good luck make people overconfident? Evidence from a natural experiment in the stock market," Journal of Corporate Finance, Elsevier, vol. 68(C).
    4. Yu-Jane Liu & Chih-Ling Tsai & Ming-Chun Wang & Ning Zhu, 2010. "Prior Consequences and Subsequent Risk Taking: New Field Evidence from the Taiwan Futures Exchange," Management Science, INFORMS, vol. 56(4), pages 606-620, April.
    5. Markku Kaustia & Samuli Knüpfer, 2008. "Do Investors Overweight Personal Experience? Evidence from IPO Subscriptions," Journal of Finance, American Finance Association, vol. 63(6), pages 2679-2702, December.
    6. Niko Suhonen & Jani Saastamoinen, 2018. "How Do Prior Gains and Losses Affect Subsequent Risk Taking? New Evidence from Individual-Level Horse Race Bets," Management Science, INFORMS, vol. 64(6), pages 2797-2808, June.
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