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The formation of risk preferences through small-scale events

Author

Listed:
  • Silvia Angerer
  • E. Glenn Dutcher
  • Daniela Glätzle-Rützler
  • Philipp Lergetporer
  • Matthias Sutter

Abstract

Large, macroeconomic shocks in the past have been shown to influence economic decisions in the present. We study in an experiment with 743 subjects whether small-scale, seemingly negligible, events also affect the formation of risk preferences. In line with a reinforcement learning model, we find that subjects who won a random lottery took significantly more risk in a second lottery almost a year later. The same pattern emerges in another experiment with 136 subjects where the second lottery was played more than three years after the first lottery. So, small-scale, random, events affect the formation of risk preferences significantly.

Suggested Citation

  • Silvia Angerer & E. Glenn Dutcher & Daniela Glätzle-Rützler & Philipp Lergetporer & Matthias Sutter, 2021. "The formation of risk preferences through small-scale events," Working Papers 2021-24, Faculty of Economics and Statistics, Universität Innsbruck.
    • Handle: RePEc:inn:wpaper:2021-24
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    More about this item

    Keywords

    Reinforcement learning; risk preferences; preference formation; experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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