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Losing money: Risk preferences for losses from long-term endowments

Author

Listed:
  • Hu, Xinyue

    (University of California, Irvine)

  • Koudahl, Magnus Tønder
  • Morville, Tobias
  • Siebner, Hartwig
  • Hulme, Oliver J

Abstract

A central prediction within the behavioral sciences asserts that agents are risk-seeking in the domain of losses. This prediction rests on experimental evidence that did not involve the realistic experience of losses. Here we tested whether this notion still holds if participants face realistic losses. To this end, we endowed participants with over $600 for at least one month and asked them to play gambles for real, substantive, and consequential losses that spanned three orders of magnitude. A hierarchical Bayesian cognitive model comprising a latent mixture of several competing utility models yielded strong evidence for risk-seeking in the domain of losses. The participant's risk-seeking behavior was invariant to the order of magnitude of the gamble. According to this data, risk-seeking behaviour in the domain of losses generalised in our sample to consequential and substantive financial losses.

Suggested Citation

  • Hu, Xinyue & Koudahl, Magnus Tønder & Morville, Tobias & Siebner, Hartwig & Hulme, Oliver J, 2024. "Losing money: Risk preferences for losses from long-term endowments," OSF Preprints psy95_v1, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:psy95_v1
    DOI: 10.31219/osf.io/psy95_v1
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    References listed on IDEAS

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