We will have Martin Weber, University of Mannheim, give a talk in the Social, Economic, and Decision Psychology Colloquium (Thursday, Dec 7; title and abstract follow).

The Realization Effect for Gains and Losses – Extending Imas’ (2016) Results

There is a long-standing debate how risk attitude changes depending on previous gains and losses. For the case of previous losses, Imas (2016) finds that risk taking is influenced by the fact whether losses are realized or not. After a realized loss, investor’s risk aversion increases whereas it decreases after an unrealized loss. This effect is has been termed realization effect. In our study, we also find a realization effect in the gain domain, i.e. we show that the effect is independent of previous gains and losses. We further test the robustness of the effect and find that a physical transfer of money is a necessary condition for the realization effect.