Picking Pennies

78 Pages Posted: 13 Jun 2016 Last revised: 27 Aug 2019

See all articles by Elise Payzan-LeNestour

Elise Payzan-LeNestour

University of New South Wales; Financial Research Network (FIRN)

Date Written: July 22, 2019


People often expose themselves to negative tail risk by taking on losing bets in which randomly-occurring major losses eradicate all previous gains. Why is this? Here I present evidence from a collection of laboratory experiments aimed at testing several plausible causal explanations. All these explanations are falsified except for the proposition that people are greedy and lack self-control. These findings highlight the importance of purely behavioral factors (alongside and independent of cognitive factors) in helping to understand how people respond to tail risk.

Keywords: tail risk, self-control, gambling, negative skewness, neuroeconomics, neurofinance

JEL Classification: C91, D83, D87, G02, G11

Suggested Citation

Payzan-LeNestour, Elise, Picking Pennies (July 22, 2019). UNSW Business School Research Paper No. 2016 BFIN 02. Available at SSRN: https://ssrn.com/abstract=2793822 or http://dx.doi.org/10.2139/ssrn.2793822

Elise Payzan-LeNestour (Contact Author)

University of New South Wales ( email )

Australian School of Business
Sydney, NSW 2052

HOME PAGE: http://www.elisepayzan.com/

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

HOME PAGE: http://www.firn.org.au

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