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The effect of paper versus realized losses on subsequent risk-taking: Field evidence from casino gambling

Author

Listed:
  • Philippe Meier

    () (Department of Business Administration, University of Zurich)

  • Raphael Flepp

    () (Department of Business Administration, University of Zurich)

  • Maximilian Rüdisser

    () (Department of Business Administration, University of Zurich)

  • Egon Franck

    () (Department of Business Administration, University of Zurich)

Abstract

In this paper, we test the realization effect, i.e., that risk-taking increases after a paper loss, whereas risk-taking decreases after a realized loss, using gambling data from a real casino. During a particular casino visit, losses are likely perceived as paper losses because the chance to offset prior losses remains effective until leaving the casino. However, when casino customers leave the casino, the final account balance is realized. Using individual-level slot machine gambling records, we find that risk-taking after paper losses increases during a visit and that this effect is more pronounced for larger losses. Conversely, risk-taking across multiple visits is not altered if the realized losses are comparatively small, whereas risk-taking is reduced if realized losses are comparatively large.

Suggested Citation

  • Philippe Meier & Raphael Flepp & Maximilian Rüdisser & Egon Franck, 2020. " The effect of paper versus realized losses on subsequent risk-taking: Field evidence from casino gambling," Working Papers 385, University of Zurich, Department of Business Administration (IBW).
  • Handle: RePEc:zrh:wpaper:385
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    More about this item

    Keywords

    Market decision making; realization effect; risk behavior; loss; field analysis;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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