Matti Koivuranta, Marko Korhonen, Changes in risk preferences: Evidence from Swedish harness horse racing data, Journal of Economic Behavior & Organization, Volume 187, 2021, Pages 16-32, ISSN 0167-2681, https://doi.org/10.1016/j.jebo.2021.04.034
Changes in risk preferences : evidence from Swedish harness horse racing data
|Author:||Koivuranta, Matti1; Korhonen, Marko1|
1Department of Economics, University of Oulu, P.O. Box 4600, 90014, Finland
|Online Access:||PDF Full Text (PDF, 1.7 MB)|
|Persistent link:|| http://urn.fi/urn:nbn:fi-fe2021090244976
|Publish Date:|| 2021-09-02
We measure the time variation of risk preferences in real market data. We utilize data on Swedish tote-betting on horse races for the period 1995 to 2015 and show that risk preferences among horse-race bettors change with economic conditions. More specifically, we extract a measure of risk-aversion based on the favorite-longshot bias (FLB) and provide evidence that the computed measure follows the consumer-confidence index. In addition, we show by an application that the FLB-based risk-preference measure sharpens the predictions of a simple forecasting model for Swedish industrial production. Furthermore, we show that risk-aversion consistently increases following shocking news on disastrous events, including non-economic events such as natural disasters and terrorist attacks. We argue that emotions, such as fear, are the likely explanation for this variation.
Journal of economic behavior & organization
|Pages:||16 - 32|
|Type of Publication:||
A1 Journal article – refereed
|Field of Science:||
512 Business and management
© 2021 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).