Pavlovian Influences on Repeated Risk-Taking: Theory and Evidence

83 Pages Posted: 1 Apr 2020 Last revised: 6 Jan 2023

See all articles by Elise Payzan-LeNestour

Elise Payzan-LeNestour

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

James Doran

University of New South Wales

Date Written: January 13, 2023

Abstract

We propose a new model of choice under repeated exposure to gambles. In it, the agent may
come to choose a negative expected value, negative skew gamble, due to a behavioral bias that
has a neurobiological foundation. We run laboratory experiments as a first step in testing the
model, and supplement the experimental findings with suggestive evidence from observational
data. In the process of doing so, we identify a new asset pricing anomaly. The findings bring
novel insights into the motivations underlying investor decisions and the impact of temptation
and self-control in contexts of repeated risk-taking.

Keywords: Decision making under uncertainty, self-control, craving, option pricing, neurofinance

JEL Classification: C91, D87, G41

Suggested Citation

Payzan-LeNestour, Elise and Doran, James, Pavlovian Influences on Repeated Risk-Taking: Theory and Evidence (January 13, 2023). Available at SSRN: https://ssrn.com/abstract=3545804 or http://dx.doi.org/10.2139/ssrn.3545804

Elise Payzan-LeNestour (Contact Author)

University of New South Wales ( email )

Australian School of Business
Sydney, NSW 2052
Australia

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

Financial Research Network (FIRN)

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

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

James Doran

University of New South Wales ( email )

College Rd
Sydney, NSW 2052
Australia

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