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Staying ahead and getting even: Risk attitudes of experienced poker players

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  • Eil, David
  • Lien, Jaimie W.

Abstract

Frequent online poker players with extensive experience calculating probabilities and expected values might be expected to behave as Expected Utility maximizers, in that small shocks to their wealth would not affect risk preferences (Rabin, 2000). By contrast, reference-dependent loss aversion (as in Prospect Theory) (Koszegi and Rabin, 2006; Kahneman and Tversky, 1979) predicts that risk aversion decreases as wealth moves away from the reference point in either direction. In terms of continuing to play, as well as a more aggressive playing style, we find strong evidence for the break-even effect, the increased pursuit of risk as a player is losing within a session. Players' behavior also appears consistent with existing evidence on reference-dependent labor supply, in their tendency to reduce effort and risk-taking in response to being ahead. Our findings provide evidence for reference-dependent behavior in a flexible, high-skilled setting, under conditions of well-understood monetary risk.

Suggested Citation

  • Eil, David & Lien, Jaimie W., 2014. "Staying ahead and getting even: Risk attitudes of experienced poker players," Games and Economic Behavior, Elsevier, vol. 87(C), pages 50-69.
  • Handle: RePEc:eee:gamebe:v:87:y:2014:i:c:p:50-69
    DOI: 10.1016/j.geb.2014.04.008
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    4. C. Grace Haaf & Devansh Singh & Cinny Lin & Scofield Zou, 2021. "Rational AI: A comparison of human and AI responses to triggers of economic irrationality in poker," Papers 2111.07295, arXiv.org.
    5. Zhang, Mu & Zheng, Jie, 2017. "A robust reference-dependent model for speculative bubbles," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 232-258.
    6. Chao, Ching-Hsiang & Huang, Chih-Jen & Ho, Ruey-Jenn & Huang, Hsin-Yi, 2022. "Catering to investors through capital expenditures: Testing assets substitution problem around financing," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    7. Czibor, Eszter & Claussen, Jörg & van Praag, Mirjam, 2019. "Women in a men’s world: Risk taking in an online card game community," Journal of Economic Behavior & Organization, Elsevier, vol. 158(C), pages 62-89.
    8. Benistant, Julien & Suchon, Rémi, 2021. "It does (not) get better: Reference income violation and altruism," Journal of Economic Psychology, Elsevier, vol. 85(C).
    9. Madonia, Greg & Smith, Austin C., 2019. "All-In or checked-out? Disincentives and selection in income share agreements," Journal of Economic Behavior & Organization, Elsevier, vol. 161(C), pages 52-67.
    10. Flepp, Raphael & Meier, Philippe & Franck, Egon, 2021. "The effect of paper outcomes versus realized outcomes on subsequent risk-taking: Field evidence from casino gambling," Organizational Behavior and Human Decision Processes, Elsevier, vol. 165(C), pages 45-55.
    11. Mujcic, Redzo & Powdthavee, Nattavudh, 2022. "How Do Humans Respond to Huge Financial Losses?," IZA Discussion Papers 15536, Institute of Labor Economics (IZA).
    12. Dertwinkel-Kalt, Markus & Kasinger, Johannes & Schneider, Dmitrij, 2022. "Skewness preferences: Evidence from online poker," SAFE Working Paper Series 351, Leibniz Institute for Financial Research SAFE.

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    More about this item

    Keywords

    Decision-making under uncertainty; Reference-dependence; Experience; Risk;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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