American Economic Review Vol. 115 No. 1 2025

Dynamic Inconsistency in Risky Choice: Evidence from the Lab and Field

Rawley Heimer¹; Zwetelina Iliewa²; Alex Imas³; Martin Weber⁴

¹ W.P. Carey School of Business, Arizona State University (email: ) · ² University of Bonn (email: ) · ³ Booth School of Business, University of Chicago (email: ) · ⁴ Department of Finance, University of Mannheim, and the Centre for European Policy Research (email: )

Abstract

We document a robust dynamic inconsistency in risky choice. Using a unique brokerage dataset and a series of experiments, we compare people's initial risk-taking plans to their subsequent decisions. Across settings, people accept risk as part of a loss-exit strategy—planning to continue taking risk after gains and stopping after losses. Actual behavior deviates from initial strategies by cutting gains early and chasing losses. More people accept risk when offered a commitment to their initial strategy. Our results help reconcile seemingly contradictory findings on risk-taking in static versus dynamic contexts. We explore implications for theory and welfare.

DOI

10.1257/aer.20210307

Volume

115

Issue

1

Pages

330-363

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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