Subsequent Risk-taking Research Articles

Risk aversion in risk-taking tasks: Combined effects of feedback attributes and cognitive reflection ability.

Feedback on human choices is important because it can affect risk-taking and rationality in subsequent decisions. In daily life, choices are not always followed by immediate outcomes nor are they always followed by simple, single-dimensional feedback. Here, we seek to extend previous studies on the effects of feedback on subsequent risk-taking in three experiments. We examine whether (1) the effect of feedback immediacy on participants' risk-taking exists in tasks containing explicit probabilistic outcome values; (2) increasing feedback dimensionality from one dimension (only about the outcome) to include a second dimension (also about the "rationality" of prior choices) increases feedback effects on risk-taking; and (3) cognitive reflection ability moderates feedback effects on risk-taking. Results showed that feedback reduced risk-taking in tasks containing explicit probabilistic outcomes (Studies 1 and 2). They further showed that two-dimensional feedback produces a stronger reduction in risk-taking compared to single-dimensional feedback (Study 3). Lastly, results suggested that cognitive reflection ability moderates the effects of feedback on risk-taking (Study 4). Taken together, the findings extended the understanding of risk-taking and mitigating mechanisms and pave the way for intervention studies aimed at changing risky behaviors.

Financial Forecasting, Risk-taking and Venture Performance

This conceptual paper develops a model based on prospect theory that explores how the effort entrepreneurs expend developing financial forecasts may influence risk-taking and performance. It proposes that the more effort they expend on developing forecasts, the more likely they will be to use the results of the forecasts as reference points against which they evaluate their ventures’ future performance. Furthermore, we propose that effort leads to more optimistic reference points that are less likely to be adjusted. Our model suggests that these factors are related to subsequent risk-taking by entrepreneurs. The model further suggests that, for entrepreneurs, the relationship between risk-taking and performance is moderated by the level of utility the entrepreneur experiences from venture performance.

The good, the bad, and the lucky: Causal attributions for prior outcomes and subsequent risk-taking

It is well documented theoretically in organizational studies and behavioral economics that prior gains and losses influence an individual’s subsequent risk-taking. We argue that this theory is incomplete and should account for not only the prior outcome but also perceptions of why the outcome occurred. In this paper, we integrate attribution theory with quasi-hedonic editing theory to theorize that causal attributions, i.e., how individuals explain an outcome or event, regarding prior gains and losses, influence subsequent risk-taking. We test our hypotheses using two experiments, a poker experiment, and a trivia experiment. Implications as well as future avenues for management research are discussed. Overall, our findings provide a new theoretical perspective on the relationship between prior outcomes, attributions, and subsequent risk-taking.

Age Differences in Discrete Emotional States During Risk Taking

Emotions often guide risk-taking. For example, anger tends to lead to increased risk-taking. However, older and younger adults differ in their emotional experiences: older adults tend to report more positive emotions, fewer experiences of anger, and relatively similar or increased experiences of sadness relative to younger adults. As such, differences in emotional experience may manifest in the integral emotional responses of older and younger adults as they take risks. The current work examined the discrete integral emotional responses of older and younger adults as they completed the Balloon Analogue Risk Task (BART). For the BART, participants completed 40 trials. Prior to each trial, participants reported how much anger, sadness, contentment, and excitement they felt. The results indicate that younger adults experienced more anger and less contentment than older adults in response to the BART. Importantly though, age differences also emerged in how discrete emotions predicted subsequent risk-taking.

Closing a mental account: the realization effect for gains and losses

How do risk attitudes change after experiencing gains or losses? For the case of losses, Imas (Am Econ Rev 106:2086–2109, 2016) shows that subsequent risk-taking behavior depends on whether these losses have been realized or not. After a realized loss, individuals’ risk-taking decreases, whereas it increases after an unrealized (paper) loss. He refers to this asymmetry as the realization effect. In this study, we derive theoretical predictions for risk-taking after paper and realized gains, and for investment opportunities with different skewness. We experimentally test these predictions and, at the same time, replicate Imas’ original study. Independent of a prior gain or loss, we show that subsequent risk-taking is higher when outcomes remain unrealized. However, we find no evidence of a realization effect for non-positively skewed lotteries. While the first result suggests that the effect is more general, the second result reveals its boundary conditions.

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

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.

The effect of emotion regulation on risk-taking and decision-related activity in prefrontal cortex.

Emotion regulation impacts the expected emotional responses to the outcomes of risky decisions via activation of cognitive control strategies. However, whether the regulation of emotional responses to preceding, incidental stimuli also impacts risk-taking in subsequent decisions is still poorly understood. In this study, we investigated the interplay between the regulation of incidentally induced emotional responses and subsequent choice behavior using a risky decision-making task in two independent samples (behavioral and functional magnetic resonance imaging experiment). We found that overall, emotion regulation was followed by less risky decisions, which was further reflected in an increase in activation in brain regions in dorsolateral and ventrolateral prefrontal cortex and cingulate cortex. These findings suggest that altering incidental emotions using reappraisal strategies impacts on subsequent risk-taking in decision-making.

The Teenage Brain: Public Perceptions of Neurocognitive Development during Adolescence.

Over the past decade, important insights have been obtained into the neurocognitive development during adolescence. To better understand how these neuroscientific insights impact the real world, we investigated how neuroscience has shaped public perceptions of the "teenage brain" and if these perceptions influence adolescent behavior. When asking to generate free associations with the word "teenage brain," adolescents ( n = 363, Mage = 14.47 years) and parents ( n = 164, Mage = 47.16 years) more often mention undesirable behaviors (e.g., "irresponsible") than desirable behaviors (e.g., "creative"). Despite these dominantly negative associations, priming adolescents with positively versus negatively framed statements about adolescent brain development did not influence their subsequent risk-taking, impulsivity, and performance on response-to-failure tasks. However, we did find a more nuanced effect, related to how much adolescents agreed with the negative versus positive priming statements: Adolescents' negative beliefs about adolescent brain development reinforced negative behaviors by increased risk-taking behaviors, and adolescents' positive beliefs reinforced positive behaviors by using positive strategies to cope with academic setbacks. The current findings underline the impact of views that build up over time and that these are not easily influenced by a one-time instance of information but rather reinforce the impact of new information. To prevent negative perceptions of the teenage brain from becoming self-fulfilling prophecies, it is important that communication about adolescent neurocognitive development is framed in a more balanced way. Neuroscientists need to be more aware of how their research impacts the real world, before we are fully ready for "real-world neuroscience."

Closing a Mental Account: The Realization Effect for Gains and Losses

How do risk attitudes change after experiencing gains or losses? For the case of losses, Imas (Am Econ Rev 106:2086–2109, 2016) shows that subsequent risk-taking behavior depends on whether these losses have been realized or not. After a realized loss, individuals’ risk-taking decreases, whereas it increases after an unrealized (paper) loss. He refers to this asymmetry as the realization effect. In this study, we derive theoretical predictions for risk-taking after paper and realized gains, and for investment opportunities with different skewness. We experimentally test these predictions and, at the same time, replicate Imas’ original study. Independent of a prior gain or loss, we show that subsequent risk-taking is higher when outcomes remain unrealized. However, we find no evidence of a realization effect for non-positively skewed lotteries. While the first result suggests that the effect is more general, the second result reveals its boundary conditions.

Repeat testing for chlamydia trachomatis, a \u201csafe approach\u201d to unsafe sex? a qualitative exploration among youth in Stockholm

BackgroundChlamydia trachomatis testing is offered to youth in Sweden, through a network of Youth Health Clinics, free at the point of care, in an attempt to bring down the prevalence and incidence of the infection. Nevertheless, infections rates have continued to rise during the past two decades and re-testing rates among youth for Chlamydia trachomatis has been reported to be high in Stockholm County. A few literature reports suggest that testing for sexually transmitted infections and the test result itself can have an undesirable impact on the sexual behaviour for the individual, i.e. increase sexual risk-taking.MethodsThis qualitative study aimed to explore the motives for repeated testing for Chlamydia trachomatis among youth using the services of the Youth Health Clinics in Stockholm, and how testing affects their subsequent risk-taking. We interviewed 15 repeat testers aging 18–22 years.ResultsOur main findings were that the fear of social stigma related to infecting a peer was a major driver of the re-testing process. The repetitive testing process, the test result, and the encounter with personnel did not decrease sexual risk-taking among this group.ConclusionsWhile testing and treatment services are an important part of Chlamydia trachomatis prevention it must not take the focus away from primary prevention strategies. Testing should be encouraged, but not to the exclusion of risk reduction measures. The testing services must be complemented with stronger emphasis on safe sex, especially for those who attend the clinics repeatedly, otherwise the easy accessible testing services risk counteracting its own purpose. Future research should focus on developing and evaluating youth appropriate interventions to increase condom use, taking into consideration factors which youth perceive as important to drive this behaviour change.

When Do Reference Points Update? A Field Analysis of the Effect of Prior Gains and Losses on Risk-Taking over Time

We study how temporal separations affect recurring decision-making under risk and thus ask when reference points update. Using both experimental and panel data from a casino, we analyze how individual risk-taking behavior during a casino visit depends on the outcomes of temporally separated prior visits. Our results show that small prior gains lead to more risk-averse behavior in the next visit, but small prior losses have no effect on subsequent risk-taking. These results suggest an asymmetric temporal effect of small prior gains and losses, whereby gains affect subsequent choices for longer than losses. Thus, the reference point—which determines subsequent risk-taking behavior—updates much faster after small losses than after small gains. Further, we find that risk-taking greatly depends on the size of prior outcomes. Whereas large prior losses also impact subsequent choices and strongly reduce risk-taking, large prior gains only have a marginal effect, if any.

Market for Bank Control, Charter Value, and Risk Incentives: Evidence from a Landmark Court Decision

This study examines structural shifts in the market for bank control resulting from the court decision of Northeast Bancorp, Inc., et al. v. Board of Governors (1985), and analyze its impact on stock prices and risk incentives in affected banks. The outcome of the case reaffirmed the constitutionality of regional compacts in interstate banking laws, which were motivated by protectionist policies. We document large, positive reactions in the affected bank stock prices, and show that it is mostly due to takeover speculation on expected targets. These price reactions negatively impact subsequent risk-taking. We find consistent evidence using disaggregated data on risky lending behavior within border counties with different regulatory environments.

Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?*

We investigate whether differences in individuals’ experiences of macro-economic shocks affect longterm risk attitudes, as is often suggested for the generation that experienced the Great Depression. Using data from the Survey of Consumer Finances from 1964-2004, we find that birth-cohorts that have experienced high stock market returns throughout their life report lower risk aversion, are more likely to be stock market participants, and, if they participate, invest a higher fraction of liquid wealth in stocks. We also find that cohorts that have experience high inflation are less likely to hold bonds. These results are estimated controlling for age, year effects, and a broad set of household characteristics. Our estimates indicate that stock market returns and inflation early in life affect risk-taking several decades later. However, more recent returns have a stronger effect, which fades away slowly as time progresses. Thus, the experience of risky asset payoffs over the course of an individuals’ life affects subsequent risk-taking. Our results explain, for example, the relatively low rates of stock market participation among young households in the early 1980s (following the disappointing stock market returns in the 1970s depression) and the relatively high participation rates of young investors in the late 1990s (following the boom years in the 1990s).