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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | When do reference points update? A field analysis of the effect of prior gains and losses on risk-taking over time |
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| Institution | University of Zurich |
| Series Name | UZH Business Working Paper Series |
| Number | 369 |
| ISSN | 2296-0422 |
| Number of Pages | 40 |
| Date | 2017 |
| Abstract Text | We study how temporal separations affect recurring decision-making under risk and thus ask when reference points update. Using both experimental and panel data from a casino, we analyze how individual risk-taking behavior during a casino visit depends on the outcomes of temporally separated prior visits. Our results show that small prior gains lead to more risk-averse behavior in the next visit, but small prior losses have no effect on subsequent risk-taking. These results suggest an asymmetric temporal effect of small prior gains and losses, whereby gains affect subsequent choices for longer than losses. Thus, the reference point — which determines subsequent risk-taking behavior — updates much faster after small losses than after small gains. Further, we find that risk-taking greatly depends on the size of prior outcomes. Whereas large prior losses also impact subsequent choices and strongly reduce risk-taking, large prior gains only have a marginal effect, if any. |
| Other Identification Number | merlin-id:18182 |
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