THE EFFECT OF PERCEIVED SIMILARITY ON SEQUENTIAL RISK-TAKING

Abstract

ABSTRACT We examine how perceived similarity between sequential risks affects individuals' risk-taking intentions. Specifically, in six studies we find that in sequential choice settings individuals exhibit significant positive state dependence in risk-taking preferences, such that they are more likely to take a risk when it is similar to a previously taken risk than when it is dissimilar. For example, if an individual has previously taken a health/safety risk, that individual is more likely to take a second health/safety risk than a second risk that is in the financial domain. Since similarity between risks is malleable and can be determined by situational and contextual variables, we show that we can change subsequent risk-taking intentions in a predictable manner by manipulating similarity through framing. Finally, we establish that increased feelings of self-efficacy and self-signaling through the prior risk-taking experience drive state dependent risk-taking preferences. We further show that the effe...