The Formation of Risk Preferences Through Small-Scale Events

46 Pages Posted: 24 Aug 2021

See all articles by Silvia Angerer

Silvia Angerer

UMIT - Private University for Health Sciences, Medical Informatics and Technology

E. Glenn Dutcher

Ohio University - Department of Economics

Daniela Glätzle-Rützle

University of Innsbruck - Department of Public Finance

Philipp Lergetporer

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Matthias Sutter

Max Planck Institute for Research on Collective Goods

Multiple version iconThere are 3 versions of this paper

Date Written: August 2021

Abstract

Large, macroeconomic shocks in the past have been shown to influence economic decisions in the present. We study in an experiment with 743 subjects whether small-scale, seemingly negligible, events also affect the formation of risk preferences. In line with a reinforcement learning model, we find that subjects who won a random lottery took significantly more risk in a second lottery almost a year later. The same pattern emerges in another experiment with 136 subjects where the second lottery was played more than three years after the first lottery. So, small-scale, random, events affect the formation of risk preferences significantly.

Keywords: Reinforcement learning, risk preferences, preference formation, experiment

JEL Classification: C91, D01, D83

Suggested Citation

Angerer, Silvia and Dutcher, E. Glenn and Glätzle-Rützle, Daniela and Lergetporer, Philipp and Sutter, Matthias, The Formation of Risk Preferences Through Small-Scale Events (August 2021). MPI Collective Goods Discussion Paper, No. 2021/16, Available at SSRN: https://ssrn.com/abstract=3909677 or http://dx.doi.org/10.2139/ssrn.3909677

Silvia Angerer

UMIT - Private University for Health Sciences, Medical Informatics and Technology ( email )

Eduard-Wallnöfer-Zentrum 1
Hall, Tirol 6060
Austria

E. Glenn Dutcher

Ohio University - Department of Economics ( email )

Athens, OH 45701-2979
United States

Daniela Glätzle-Rützle

University of Innsbruck - Department of Public Finance ( email )

Innrain 52
Innsbruck, 6020
Austria

Philipp Lergetporer

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Dresden Branch
Einsteinstraße 3
Dresden, 01069
Germany

Matthias Sutter (Contact Author)

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

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