We examine how prior outcomes can influence expectations about unrelated future events. Consistent with the affect literature, we first predict that prior outcomes will yield more optimistic expectations when the outcomes are positively, rather than negatively, valenced. We then predict that the impact of prior outcomes will depend on not only the valence, but also the domain of prior outcomes. Specifically, we draw from Prospect theory to predict that the impact of prior outcomes on future expectations will be greater in the domain of losses than in the domain of gains. Two lottery-based experiments demonstrate that this effect is robust across different starting and ending wealth states, and a third experiment shows that these differences in expectations also translate into differences in risk preferences.
|Original language||English (US)|
|Number of pages||12|
|Journal||Organizational Behavior and Human Decision Processes|
|State||Published - May 2006|
- Prospect theory
- Risk preferences