• AEA in the news
  • September 13, 2016

Are investors more or less willing to take on risk after a big money loss?


The Wall Street Journal covered a study about the impact of financial losses on risk attitudes published in the August issue of the American Economic Review. In The Realization Effect: Risk-Taking after Realized versus Paper Losses, author Alex Imas analyzes existing data and new experimental evidence to conclude that the valence of losses depends on whether they are actually realized, or merely exist on paper. Paper losses tend to lead to an increase in risk-taking, while actual realized losses tend to depress risk-taking.