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Prospect Theory predictions in the field: Risk seekers in settings of weak accounting controls

A. Rashad Abdel-khalik (The University of Illinois, United States) *

Journal of Accounting Literature

ISSN: 0737-4607

Article publication date: 1 November 2014

Issue publication date: 31 December 2014

66

Abstract

In his review of 30 years of research in Prospect Theory, Barberis (2013) notes that support for Prospect Theory had come mainly from the laboratory. In this paper, I write about a recurring phenomenon in real life that is consistent with Prospect Theory predictions in decision-making loss domain. The 60 cases noted in this paper are associated with specific risk seekers that had cost more than $140 billion (an average of $2.33 billion per case). Given space consider– ations, I provide synopses for 14 cases. A few of these cases have been discussed in the extant literature in connection with internal control, but were not considered from the perspective of Prospect Theory. It is striking that these cases are costly, all participants are young men, and almost all had followed the gambler’s martingale strategy – i.e., double down. While these cases are informative about risk-seeking behavior, they are not sufficiently systematic to be subjected to stylized archival research methods.

Keywords

Citation

Abdel-khalik, A.R. (2014), "Prospect Theory predictions in the field: Risk seekers in settings of weak accounting controls", Journal of Accounting Literature, Vol. 33 No. 1-2, pp. 58-84. https://doi.org/10.1016/j.acclit.2014.10.001

Publisher

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Emerald Publishing Limited

Copyright © 2014, Emerald Publishing Limited

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