Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/288768 
Year of Publication: 
2020
Citation: 
[Journal:] Experimental Economics [ISSN:] 1573-6938 [Volume:] 24 [Issue:] 1 [Publisher:] Springer US [Place:] New York, NY [Year:] 2020 [Pages:] 303-329
Publisher: 
Springer US, New York, NY
Abstract: 
How do risk attitudes change after experiencing gains or losses? For the case of losses, Imas (Am Econ Rev 106:2086–2109, 2016) shows that subsequent risk-taking behavior depends on whether these losses have been realized or not. After a realized loss, individuals’ risk-taking decreases, whereas it increases after an unrealized (paper) loss. He refers to this asymmetry as the realization effect. In this study, we derive theoretical predictions for risk-taking after paper and realized gains, and for investment opportunities with different skewness. We experimentally test these predictions and, at the same time, replicate Imas’ original study. Independent of a prior gain or loss, we show that subsequent risk-taking is higher when outcomes remain unrealized. However, we find no evidence of a realization effect for non-positively skewed lotteries. While the first result suggests that the effect is more general, the second result reveals its boundary conditions.
Subjects: 
Realization effect
Mental accounting
House money effect
Risk-taking
JEL: 
D11
D14
D81
G11
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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