On Taking a Skewed Risk More than Once
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. (JEL D81, D91, G11, G41)
Fields of Study & Subjects
AI-based Problem Solving and Planning
Risk and Safety Analysis
Publication details
- Journal / source
- American Economic Journal Microeconomics
- Publisher
- American Economic Association
- Volume
- 18
- Issue
- 2
- Pages
- 395–425
- Publication date
- 27 April 2026
- Language
- EN