The Effect of Paper Versus Realized Losses on Subsequent Risktaking: Field Evidence From Casino Gambling

UZH Business Working Paper No. 385

22 Pages Posted: 29 Jan 2020

See all articles by Philippe Meier

Philippe Meier

University of Zurich - Department of Business Administration

Raphael Flepp

University of Zurich - Department of Business Administration (IBW)

Maximilian Rüdisser

University of Zurich - Department of Business Administration (IBW)

Egon P. Franck

University of Zurich - Department of Business Administration (IBW)

Date Written: January 8, 2020

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.

Keywords: decision making, realization effect, risk behavior, loss, field analysis

JEL Classification: D12, D14, D81

Suggested Citation

Meier, Philippe and Flepp, Raphael and Rüdisser, Maximilian and Franck, Egon P., The Effect of Paper Versus Realized Losses on Subsequent Risktaking: Field Evidence From Casino Gambling (January 8, 2020). UZH Business Working Paper No. 385, Available at SSRN: https://ssrn.com/abstract=3515981 or http://dx.doi.org/10.2139/ssrn.3515981

Philippe Meier (Contact Author)

University of Zurich - Department of Business Administration ( email )

Rämistrasse 71
Zurich, CH-8006
Switzerland

Raphael Flepp

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich, 8032
Switzerland

Maximilian Rüdisser

University of Zurich - Department of Business Administration (IBW) ( email )

Affolternstrasse 56
Zurich, Zurich 8050
Switzerland

Egon P. Franck

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich 8032
Switzerland
+41 1 634 28 45 (Phone)

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