78 Pages Posted: 13 Jun 2016 Last revised: 14 Oct 2019
Date Written: October 12, 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.The evidence suggests that one important determinant of this behavior is an urge to gamble despite a desire to stop. These findings highlight the importance of purely motivational factors (alongside and independent of cognitive factors) in helping to understand how people respond to negative tail risk.
Keywords: tail risk, self-control, gambling, craving, neuroeconomics, neurofinance
JEL Classification: C91, D83, D87, G02, G11
Suggested Citation: Suggested Citation