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The impacts of superstition on risk preferences and beliefs: Evidence from the Chinese zodiac year

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  • Wu, Nan
  • Zhang, Xiaomeng
  • Zhou, Wenyu

Abstract

Previous studies have extensively confirmed that superstition profoundly influences a wide range of economically consequential decisions. However, the underlying mechanisms largely remain unexplored. Specifically, superstitions can affect either people's endogenous risk preferences or their subjective beliefs about uncertain events. Clarifying which of these two mechanisms is at work holds both policy and practical relevance. Notably, a change in risk preferences does not deviate from the conventional utility maximization framework, while a distortion in beliefs may lead to a welfare loss in decision-making. In this paper, we distinguish these two mechanisms using novel experimental methods, taking the Chinese zodiac year as an example. We find that the zodiac year correlates with both an increase in risk aversion and excessive pessimism in decision-making. Furthermore, we illustrate the potential impacts of zodiac year superstition on real-world businesses through two case studies.

Suggested Citation

  • Wu, Nan & Zhang, Xiaomeng & Zhou, Wenyu, 2023. "The impacts of superstition on risk preferences and beliefs: Evidence from the Chinese zodiac year," China Economic Review, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:chieco:v:81:y:2023:i:c:s1043951x23001281
    DOI: 10.1016/j.chieco.2023.102043
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    More about this item

    Keywords

    Zodiac year; Superstition; Risk preference; Pessimism; Experiment; Stock investment; Insurance purchase;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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