Building on previous research in economics and psychology, we propose that the costliness of initial prosocial behavior positively influences whether that behavior leads to consistent future behaviors. We suggest that costly prosocial behaviors serve as a signal of prosocial identity and that people subsequently behave in line with that self-perception. In contrast, costless prosocial acts do not signal much about one's prosocial identity, so subsequent behavior is less likely to be consistent and may even show the reductions in prosocial behavior associated with licensing. The results of a laboratory experiment and a large field experiment converge to support our account. This paper was accepted by Brad Barber, Teck Ho, and Terrance Odean, special issue editors.
Understanding how prior outcomes affect risk attitudes is critical for the study of choice under uncertainty in many economically important contexts. If the value of a stock falls below the purchase price, does this affect the investor's subsequent behavior, and if so, does he seek a riskier position or switch to a safer one? If a casino gambler loses money at the roulette table, does he get discouraged and quit gambling or chase his losses?Standard expected utility theory assumes that prior outcomes influence risk-taking only if there is a substantial change in wealth (Savage 1954); an individual's risk preferences should be stable with respect to small and moderate losses (Rabin 2000). However, empirical evidence suggests that risk attitudes are often dependent on an individual's history of gains and losses. Prior losses
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