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The Formation of Risk Preferences through Small-Scale Events

Author

Listed:
  • Angerer, Silvia
  • Dutcher, E. Glenn

    (University of Central Missouri)

  • Glätzle-Rützler, Daniela

    (University of Innsbruck)

  • Lergetporer, Philipp

    (Technical University of Munich)

  • Sutter, Matthias

    (Max Planck Institute for Research on Collective Goods)

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.

Suggested Citation

  • Angerer, Silvia & Dutcher, E. Glenn & Glätzle-Rützler, Daniela & Lergetporer, Philipp & Sutter, Matthias, 2021. "The Formation of Risk Preferences through Small-Scale Events," IZA Discussion Papers 14679, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp14679
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    More about this item

    Keywords

    preference formation; risk preferences; reinforcement learning; experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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