When do reference points update? A field analysis of the effect of prior gains and losses on risk-taking over timeMaximilian Rüdisser, Raphael Flepp and Egon Franck No 369, Working Papers from University of Zurich, Department of Business Administration (IBW) Abstract: 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. Keywords: Decision-making; Risk-taking; Field experiment; Longitudinal data; Casino gambling (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:zrh:wpaper:369 Access Statistics for this paper More papers in Working Papers from University of Zurich, Department of Business Administration (IBW) Contact information at EDIRC. |
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