| Summary: | This paper experimentally investigates the effects of expectations interactions on risk-taking behavior. Additionally, we also examine how different types of expectation interactions (wins, losses, and near-misses) affect one’s risk-taking behavior at varying psychological distances. This is done through conducting 2 experiments: a real experiment where participants themselves stand to win money, and a thought experiment where participants place themselves in the shoes of others.
We find that at close psychological distances, expectation interactions influences participants when the type of expectation interactions (wins, losses, and near-misses) runs counter to the initial expectations of participants. At further psychological distances, expectations interactions influences participants when they observe an unambiguous outcome (for example, losses as opposed to near- Misses) that guides them in a clear direction. Given that we are the first to empirically study the effects of near misses in expectations interactions, future research can build on our findings by exploring varies forms of near misses, or varying the complexities of experimental games introduced.
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