How do humans respond to large realized losses?
In a controlled field setting, in which the majority of people in our sample lose more than £90,000, we examine how human beings respond to major financial losses. University ethics boards would not allow this kind of huge-loss phenomenon to be studied with normal social-science experiments. Yet the...
| Main Authors: | , |
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| Other Authors: | |
| Format: | Journal Article |
| Language: | English |
| Published: |
2025
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| Online Access: | https://hdl.handle.net/10356/182748 |
| _version_ | 1826115326123704320 |
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| author | Mujcic, Redzo Powdthavee, Nattavudh |
| author2 | School of Social Sciences |
| author_facet | School of Social Sciences Mujcic, Redzo Powdthavee, Nattavudh |
| author_sort | Mujcic, Redzo |
| collection | NTU |
| description | In a controlled field setting, in which the majority of people in our sample lose more than £90,000, we examine how human beings respond to major financial losses. University ethics boards would not allow this kind of huge-loss phenomenon to be studied with normal social-science experiments. Yet the scientific and practical issues at stake are unusually important ones. In the analyzed gameshow setting, individuals are handed £100,000 in cash. They then have to make risky decisions. Facing a sequence of seven questions, individuals are required to distribute their cash endowment over a set of possible answers. Participants lose any cash placed on a wrong answer. In a sample of British participants, we find that people become increasingly more cautious as they lose more of their cash endowment. A realized prior loss of £75,000 or more increases the propensity to fully diversify by 50 percentage points compared to a prior loss of £25,000. We find a similar cautious response in a smaller sample of US participants when the stakes are raised to $1 million US dollars. Our study appears to be the first to be able to calculate systematically how human beings react to large and unrecoverable financial losses. |
| first_indexed | 2025-03-09T11:21:25Z |
| format | Journal Article |
| id | ntu-10356/182748 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2025-03-09T11:21:25Z |
| publishDate | 2025 |
| record_format | dspace |
| spelling | ntu-10356/1827482025-02-23T15:30:30Z How do humans respond to large realized losses? Mujcic, Redzo Powdthavee, Nattavudh School of Social Sciences Social Sciences Prior losses Realized losses Diversification Risk-taking Large stakes In a controlled field setting, in which the majority of people in our sample lose more than £90,000, we examine how human beings respond to major financial losses. University ethics boards would not allow this kind of huge-loss phenomenon to be studied with normal social-science experiments. Yet the scientific and practical issues at stake are unusually important ones. In the analyzed gameshow setting, individuals are handed £100,000 in cash. They then have to make risky decisions. Facing a sequence of seven questions, individuals are required to distribute their cash endowment over a set of possible answers. Participants lose any cash placed on a wrong answer. In a sample of British participants, we find that people become increasingly more cautious as they lose more of their cash endowment. A realized prior loss of £75,000 or more increases the propensity to fully diversify by 50 percentage points compared to a prior loss of £25,000. We find a similar cautious response in a smaller sample of US participants when the stakes are raised to $1 million US dollars. Our study appears to be the first to be able to calculate systematically how human beings react to large and unrecoverable financial losses. Published version 2025-02-21T10:26:19Z 2025-02-21T10:26:19Z 2025 Journal Article Mujcic, R. & Powdthavee, N. (2025). How do humans respond to large realized losses?. Journal of Economic Psychology, 107, 102805-. https://dx.doi.org/10.1016/j.joep.2025.102805 0167-4870 https://hdl.handle.net/10356/182748 10.1016/j.joep.2025.102805 107 102805 en Journal of Economic Psychology © 2025 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/). application/pdf |
| spellingShingle | Social Sciences Prior losses Realized losses Diversification Risk-taking Large stakes Mujcic, Redzo Powdthavee, Nattavudh How do humans respond to large realized losses? |
| title | How do humans respond to large realized losses? |
| title_full | How do humans respond to large realized losses? |
| title_fullStr | How do humans respond to large realized losses? |
| title_full_unstemmed | How do humans respond to large realized losses? |
| title_short | How do humans respond to large realized losses? |
| title_sort | how do humans respond to large realized losses |
| topic | Social Sciences Prior losses Realized losses Diversification Risk-taking Large stakes |
| url | https://hdl.handle.net/10356/182748 |
| work_keys_str_mv | AT mujcicredzo howdohumansrespondtolargerealizedlosses AT powdthaveenattavudh howdohumansrespondtolargerealizedlosses |