American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
On Taking a Skewed Risk More than Once
American Economic Journal: Microeconomics
(pp. 395–425)
Abstract
Penny-picking refers to the often-observed phenomenon of repeatedly taking negatively skewed risks and seems directly at odds with evidence on (positive-)skewness-seeking as observed in static settings. We show that penny-picking may not only occur despite skewness-seeking, but—seemingly paradoxically—because of skewness-seeking. With sufficient time available, risks with arbitrary negative skewness can be gambled in such a way that, overall, skewness is positive. Therefore, classical behavioral theories like prospect theory straightforwardly explain penny-picking. More generally, we show that the versatile dynamics of skewness reconcile apparent preference reversals concerning the avoidance and acceptance of (skewed and non-skewed) risks.Citation
Ebert, Sebastian, and Mats Köster. 2026. "On Taking a Skewed Risk More than Once." American Economic Journal: Microeconomics 18 (2): 395–425. DOI: 10.1257/mic.20230279Additional Materials
JEL Classification
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- G11 Portfolio Choice; Investment Decisions
- G41 Behavioral Finance: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets [Neurofinance]