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Gambling versus investment: Lay theory and loss aversion

Author

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  • Shang, Xuesong
  • Duan, Hebing
  • Lu, Jingyi

Abstract

Gambling and investment are two domains that involve financial decisions. The present research investigates people’s lay theories about gambling and investment, and how these lay theories affect loss aversion in these domains. Lay people’s understanding of gambling and investment is often largely based on information that is immediately available to them. Moreover, information about losing money by gambling and earning money through investments are more predominant than information about earning money by gambling and losing money through investments. Hence, we hypothesized and found that people tend to hold lay theories that gambling is more likely to cause losses and less likely to bring gains compared to investment (Study 1); and we observed a stronger loss aversion when the same monetary decision was framed as gambling rather than as an investment (Studies 2 to 6). This domain-framing effect held in both hypothetical and incentivized settings.

Suggested Citation

  • Shang, Xuesong & Duan, Hebing & Lu, Jingyi, 2021. "Gambling versus investment: Lay theory and loss aversion," Journal of Economic Psychology, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:joepsy:v:84:y:2021:i:c:s0167487021000076
    DOI: 10.1016/j.joep.2021.102367
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    References listed on IDEAS

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    2. Bucciol, Alessandro & Quercia, Simone & Sconti, Alessia, 2021. "Promoting financial literacy among the elderly: Consequences on confidence," Journal of Economic Psychology, Elsevier, vol. 87(C).
    3. Cochard, François & Flage, Alexandre, 2024. "Sharing losses in dictator and ultimatum games: A meta-analysis," Journal of Economic Psychology, Elsevier, vol. 102(C).
    4. François Cochard & Alexandre Flage, 2023. "Sharing Losses in Dictator and Ultimatum Games: A Meta-Analysis," Working Papers 2023-09, CRESE.
    5. Golnaz Shahtahmassebi & Lascelles Wright, 2021. "Profit and loss manipulations by online trading brokers," Papers 2107.14055, arXiv.org.
    6. Fatas, Enrique & Restrepo-Plaza, Lina, 2022. "When losses can be a gain. A large lab-in-the-field experiment on reference dependent forgiveness in Colombia," Journal of Economic Psychology, Elsevier, vol. 88(C).
    7. Philip W. S. Newall & Leonardo Weiss-Cohen, 2022. "The Gamblification of Investing: How a New Generation of Investors Is Being Born to Lose," IJERPH, MDPI, vol. 19(9), pages 1-10, April.
    8. Ferro, Giuseppe M. & Kovalenko, Tatyana & Sornette, Didier, 2021. "Quantum decision theory augments rank-dependent expected utility and Cumulative Prospect Theory," Journal of Economic Psychology, Elsevier, vol. 86(C).

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    More about this item

    Keywords

    Lay theory; Loss aversion; Domain specificity; Gambling; Investment;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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