At Risk
Is Lottery Gambling Addictive?
Jonathan Guryan & Melissa Kearney
American Economic Journal: Economic Policy, August 2010, Pages 90-110
Abstract:
We present an empirical test for the addictiveness of lottery gambling that exploits an exogenous shock to local market consumption of lottery gambling. It uses the sale of a winning jackpot ticket in a zip code as an instrument for present consumption and tests for a causal relationship between present and future consumption. This test estimates the time path of persistence nonparametrically. Data from the Texas State Lottery suggests that after 6 months, roughly half of the initial increase in lottery consumption is maintained. After 18 months, roughly 40 percent of the initial shock persists, though estimates become less precise.
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Nature or nurture: What determines investor behavior?
Amir Barnea, Henrik Cronqvist & Stephan Siegel
Journal of Financial Economics, forthcoming
Abstract:
Using data on identical and fraternal twins' complete financial portfolios, we decompose the cross-sectional variation in investor behavior. We find that a genetic factor explains about one-third of the variance in stock market participation and asset allocation. Family environment has an effect on the behavior of young individuals, but this effect is not long-lasting and disappears as an individual gains experience. Frequent contact among twins results in similar investment behavior beyond a genetic factor. Twins who grew up in different environments still display similar investment behavior. Our interpretation of a genetic component of the decision to invest in the stock market is that there are innate differences in factors affecting effective stock market participation costs. We attribute the genetic component of asset allocation - the relative amount invested in equities and the portfolio volatility - to genetic variation in risk preferences.
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The Role of Uncertainty of Outcome and Scoring in the Determination of Fan Satisfaction in the NFL
Rodney Paul, Yoav Wachsman & Andrew Weinbach
Journal of Sports Economics, forthcoming
Abstract:
Fan satisfaction with individual sports games is likely to be an important indicator of future sales of tickets, television and radio advertising, and team merchandise sales. For the 2009-2010 National Football League (NFL) season, NFL.com, the official website of the NFL, had fans enter a "fan rating" for each game of the season. This rating was on a scale of 0-100 with 100 being the most memorable. Using these figures, the authors test the economic hypotheses of the importance of uncertainty of outcome during the game and overall points scored by both teams in the game. As expected, the margin of victory in the game was shown to have a negative and significant effect on the fan rating, implying that fans enjoy uncertainty of outcome as the game is played. In addition, higher scoring games led to higher fan ratings than lower scoring games, implying fan preference for scoring.
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Do military decision makers behave as predicted by prospect theory?
Thorvald Haerem, Bård Kuvaas, Bjørn Bakken & Tone Karlsen
Journal of Behavioral Decision Making, forthcoming
Abstract:
Four experiments were conducted to explore the robustness of risky choice framing among military decision makers. In the first experiment the original version of the Asian disease problem was administered. In contrast to Tversky and Kahneman's (1981) original findings, military decision makers were not influenced by the gain and loss framing. They demonstrated risk-seeking behavior in both domains. In the second experiment, we administered a military version of the Asian disease problem. We found a significant framing effect, but it was unidirectional: The decision makers were risk seeking in both domains, but significantly more risk seeking in the loss domain. To explore the strength of this risk-seeking preference, we altered the problem in a third experiment, making the risky alternative 12.5% less attractive than the certain one. Again, we found risk-seeking behavior in both domains. Finally, we explored reasons for these deviations from prospect theory by comparing the responses of business students and military officers. In this analysis, we observed significantly higher levels of self-efficacy in the military sample, as compared to the civil sample, and that the self-efficacy influenced risk seeking only in the military sample. In a post hoc analysis we also found that years of education reduced risk-seeking preference. Implications and directions for future research are discussed.
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Patrimony and the Evolution of Risk-Taking
Michael Stern
PLoS ONE, July 2010, e11656
Abstract:
The propensity to make risky choices has a genetic component, and recent studies have identified several specific genes that contribute to this trait. Since risk-taking often appears irrational or maladaptive, the question arises how (or if) natural selection favors risk-taking. Here we show, using a stochastic simulation of selection between two hypothetical species, "R" (risk-seeking) and "A" (risk-averse) that, when expected reproductive fitness of the individual is unaffected by the making of the risky choice (winnings balanced by losses) natural selection (taken to the point of extinction) favors the risk-averse species. However, the situation is entirely reversed if offspring are permitted to inherit a small fraction of the parent's increased or decreased fitness acquired through risk-taking. This seemingly Lamarckian form of inheritance actually corresponds to the human situation when property or culture are transmitted in families. In the presence of this "cultural inheritance", the long-shot risk-taking species was overwhelmingly favored, even when 90% of individuals were rendered sterile by a losing choice. Given this strong effect in a minimal model, it is important to consider the co-evolution of genes and culture when interpreting the genetics of risk-taking. This conclusion applies, in principle, to any species where parental resources can directly affect the fecundity of offspring. It might also be relevant to the effects of epigenetic inheritance, if the epigenetic state of zygotes can be affected by parental experiences.
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Being Unpredictable: Friend or Foe Matters
Oscar Ybarra, Matthew Keller, Emily Chan, Stephen Garcia, Jeffrey Sanchez-Burks, Kimberly Rios Morrison & Andrew Baron
Social Psychological and Personality Science, July 2010, Pages 259-267
Abstract:
Psychological research has devoted much attention to how people judge and predict others. However, a full understanding of social perception necessitates incorporating the responses of the targets, who may have little interest in being predicted. The authors argue that whether people want to be predicted depends on the interpersonal context-in particular, competitive or cooperative ones. Study 1 used a unique behavioral measure and showed that competition participants, when asked to draw the flight path of a moth in a separate study, produced significantly more variable and significantly less predictable trajectories than did cooperation participants. Study 2 examined participants' self-assessments and showed that participants expecting a competitive interaction indicated that they were more difficult to predict, less willing to open up, and more willing to mislead. Together, the findings suggest that people are not always open to being predicted and that the form of these tendencies depends on features of the situation.
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Kathleen Hourihan & Aaron Benjamin
Journal of Experimental Psychology: Learning, Memory, and Cognition, July 2010, Pages 1068-1074
Abstract:
Recently, Vul and Pashler (2008) demonstrated that the average of 2 responses from a single subject to general knowledge questions was more accurate than either single estimate. Importantly, this reveals that each guess contributes unique evidence relevant to the decision, contrary to views that eschew probabilistic representations of the evidence-gathering and decision-making processes. We tested an implication of that view by evaluating this effect separately in individuals with a range of memory spans. If memory span is the buffer in which retrieved information is assembled into an evaluation, then multiple estimates in individuals with lower memory spans should exhibit greater independence from one another than in individuals with higher spans. Our results supported this theory by showing that averaging 2 guesses from lower span individuals is more beneficial than averaging 2 guesses from higher span individuals. These results demonstrate a rare circumstance in which lower memory span confers a relative advantage on a cognitive task.
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The intentional mind and the hot hand: Perceiving intentions makes streaks seem likely to continue
Eugene Caruso, Adam Waytz & Nicholas Epley
Cognition, July 2010, Pages 149-153
Abstract:
People can appear inconsistent in their intuitions about sequences of repeated events. Sometimes people believe such sequences will continue (the "hot hand"), and sometimes people believe they will reverse (the "gambler's fallacy"). These contradictory intuitions can be partly explained by considering the perceived intentionality of the agent generating the streak. The intuition that streaks will continue (reverse) should emerge in contexts involving agents that are perceived to be intentional (unintentional), and should be most common among those who are most inclined to attribute intentions to other agents. Four studies support these predictions, identifying both situational and dispositional determinants of the perceived continuity of streaks. Discussion focuses on the foundational nature of intentionality for perceptions of interdependence between events, the relationship between these findings and existing theoretical accounts, and the inverse possibility that people use perceptions of streakiness as a cue for an agent's intentionality.
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Digital Options and Efficiency in Experimental Asset Markets
Stefan Palan
Journal of Economic Behavior & Organization, September 2010, Pages 506-522
Abstract:
In asset markets, extraordinary price run-ups (bubbles) followed by crashes back to levels closer to fundamental values have been shown to adversely affect the real economy, leading to inefficient resource allocation and underinvestment. Conversely, derivative markets contribute to price discovery and lead to informationally more efficient prices in the market for the underlying asset. We combine these observations and test experimentally whether digital options - a type of derivative that has recently been introduced to a wider audience via online prediction markets - can reduce price bubbles in a laboratory setting. We find that subjects do not use the derivative market to improve their expectations of future asset prices and analyze this result.
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A comparison of the risk-taking behaviors of prisoners and non-prisoners
Yaniv Hanoch & Michaela Gummerum
Journal of Behavioral Decision Making, forthcoming
Abstract:
Do prisoners and non-prisoners differ in their risk-taking behavior and the domains where they take risks? Surprisingly little psychological research has addressed these questions, despite the well-established paradigms and extensive literature on risk taking among non-prison populations. To fill this gap, we used the Domain-Specific Risk-Taking Scale to compare 75 male prisoners' and 75 male non-prisoners' risk-taking behavior, risk perception, and risk benefit in five domains (ethical, financial, health, recreational, and social). Our results show that prisoners and non-prisoners did not differ in their risk-taking behavior in the ethical, financial, recreational, or social domains. In the health domain, however, prisoners exhibited significantly higher risk-taking tendencies. With regard to risk perception, prisoners perceived activities as significantly more risky than non-prisoners, aside from the financial domain where non-prisoners reported significantly higher risk perception. In all five domains, prisoners perceived risk-taking activities as offering fewer benefits compared to the non-prisoner sample. Our results also indicate that risk-taking activities are better predicted by the expected benefits than by risk perception for both prisoners and non-prisoners in the recreational, financial, and ethical domains. However, for prisoners, risk taking in the social domain increased with level of perceived benefit. In the health domain, prisoners' risk taking decreased with increasing level of perceived risk, whereas for non-prisoners, perceived benefits, but not risk perception, predicted risk taking.
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Are Attitudes Towards Economic Risk Heritable? Analyses Using the Australian Twin Study of Gambling
Anh Le, Paul Miller, Wendy Slutske & Nicholas Martin
Twin Research and Human Genetics, August 2010, Pages 330-339
Abstract:
This study employs multiple regression models based on DeFries and Fulker (1985), and a large sample of twins, to assess heritability in attitudes towards economic risk, and the extent to which this heritability differs between males and females. Consistent with Cesarini et al. (2009), it is found that attitudes towards risk are moderately heritable, with about 20 percent of the variation in these attitudes across individuals being linked to genetic differences. This value is less than one-half the estimates reported by Zyphur et al. (2009) and Zhong et al. (2009). While females are more risk averse than males, there is no evidence that heritability in attitudes towards risk differs between males and females. Even though heritability is shown to be important to economic risk-taking, the analyses suggest that multivariate studies of the determinants of attitudes towards risk which to not take heritability into consideration still provide reliable estimates of the partial effects of other key variables, such as gender and educational attainment.
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Eric Stenstrom, Gad Saad, Marcelo Nepomuceno & Zack Mendenhall
Personality and Individual Differences, forthcoming
Abstract:
Prenatal testosterone has important effects on brain organization and future behavior. The second-to-fourth digit length ratio (2D:4D), a proxy of prenatal testosterone exposure, has been linked to a wide variety of sexually differentiated dispositions and behaviors. We examine the relationship between digit length ratios (2D:4D and rel2, the length of the second finger relative to the sum of the lengths of all four fingers) and risk-taking behaviors across five domains: financial, social, recreational, ethical, and health. In a sub-sample of male Caucasians (ethnically homogeneous), lower rel2 was predictive of greater financial, social, and recreational risk-taking, whereas lower 2D:4D was predictive of greater risk-taking in two domains (social and recreational). In the full male sub-sample (ethnically heterogeneous), the only significant correlation was a negative association between 2D:4D and financial risk. A composite measure of risk-taking across all five domains revealed that both rel2 and 2D:4D were negatively correlated with overall risk-taking in both male sub-samples. No significant correlations were found in the female sub-samples. Finally, men were more risk-seeking than women across all five contexts.
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Human Wagering Behavior Depends on Opponents' Faces
Erik Schlicht, Shinsuke Shimojo, Colin Camerer, Peter Battaglia & Ken Nakayama
PLoS ONE, July 2010, e11663
Abstract:
Research in competitive games has exclusively focused on how opponent models are developed through previous outcomes and how peoples' decisions relate to normative predictions. Little is known about how rapid impressions of opponents operate and influence behavior in competitive economic situations, although such subjective impressions have been shown to influence cooperative decision-making. This study investigates whether an opponent's face influences players' wagering decisions in a zero-sum game with hidden information. Participants made risky choices in a simplified poker task while being presented opponents whose faces differentially correlated with subjective impressions of trust. Surprisingly, we find that threatening face information has little influence on wagering behavior, but faces relaying positive emotional characteristics impact peoples' decisions. Thus, people took significantly longer and made more mistakes against emotionally positive opponents. Differences in reaction times and percent correct were greatest around the optimal decision boundary, indicating that face information is predominantly used when making decisions during medium-value gambles. Mistakes against emotionally positive opponents resulted from increased folding rates, suggesting that participants may have believed that these opponents were betting with hands of greater value than other opponents. According to these results, the best "poker face" for bluffing may not be a neutral face, but rather a face that contains emotional correlates of trustworthiness. Moreover, it suggests that rapid impressions of an opponent play an important role in competitive games, especially when people have little or no experience with an opponent.
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Genetic testing and risk interpretation: How do women understand lifetime risk results?
Yaniv Hanoch, Talya Miron-Shatz & Mary Himmelstein
Judgment and Decision Making, April 2010, Pages 116-123
Abstract:
Genetic screening for BRCA1 and BRCA2 gives women the opportunity for early detection, surveillance, and intervention. One key feature of genetic testing and counseling is the provision of personal lifetime risk. However, little attention has been paid to how women interpret lifetime risk information, despite the fact that they base screening, treatment and family planning decisions on such information. To study this vital issue, we set out to test the ability of women to choose the most appropriate interpretation of National Cancer Institute's (NCI) message about lifetime risk of developing cancer for a woman with altered BRCA1 and BRCA2 genes. Participants included 277 women who had not undergone genetic testing or had cancer and 207 women who had undergone genetic testing or had cancer. Over 50% of the women who had not undergone genetic testing or had cancer and 40% of those who had undergone genetic testing or had cancer misunderstood NCI's information. Furthermore, in line with a growing body of research, we found that high numeracy level (objective or subjective) is positively associated with a woman's ability to correctly interpret NCI's message.
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Delay Discounting of Different Commodities
Jeffrey Weatherly, Heather Terrell & Adam Derenne
Journal of General Psychology, July-September 2010, Pages 273-286
Abstract:
When outcomes are delayed, their value is decreased. Delay discounting is a much-studied topic because it is correlated with certain disorders (e.g., pathological gambling). The present study attempts to determine how people would delay discount a number of different commodities, ranging from money to dating partners to federal education legislation. Participants completed delay discounting tasks pertaining to 5 different commodities, with a different set of 5 commodities for 2 groups. Results showed that different commodities were often discounted differently. Both data sets were also subjected to factor analysis. A 2-factor solution was found for both, suggesting that there are multiple "domains" of commodities. This finding is of interest because it suggests that measuring delay discounting for one commodity within a particular domain of commodities will be predictive of how people discount other commodities within that domain but will not be predictive of how they discount commodities within another domain.