November 21, 2013
If you think twice before buying that lottery ticket, you’re in
good company, says B. Erin Fairweather, assistant professor of
economics at Mount Saint Mary College.
Fairweather’s recent Investigating Research on Campus (iROC)
talk discussed “Small Stakes Risk Aversion: Evidence from the
According to Fairweather, economists have found evidence that
subjects are risk averse – they try to avoid risk at the expense of
higher returns – even when the stakes of the bet are very low.
These findings, explained Fairweather, are inconsistent with
current theories about how individuals make decisions when the
outcomes are uncertain.
Often, she says, people stick with small guaranteed payouts or
low gain-high win percentage bets, even when choosing a riskier bet
is statistically in their best interest.
“The subjects might actually be displaying an endowment effect,
rather than classic risk aversion,” explained Fairweather.
Endowment effect, she said, is when people ascribe more value to
things simply because they own them – even if they have only had
the item for a short period. Therefore, if given a small stakes
lottery ticket, a research subject might be unwilling to trade it
for a higher stakes one.
Fairweather challenged her audience to view the situation in a
different way: risk aversion might have a strong link with
disappointment aversion. In other words, the thrill of winning is
dwarfed by the disappointment of losing.
“It doesn’t matter if you have small stakes or large stakes,
you’re always going to be risk adverse when it comes to
disappointment aversion,” Fairweather explained. “Maybe it’s just
confirmation that disappointment aversion is the way we should be
looking at this.”
During seven years as a litigation consultant, Fairweather
provided expertise in securities fraud, financial markets, and
intellectual property. Her other research areas include control
fraud, income inequality, and gender and race.
Fall 2013 marks Fairweather’s first semester as a full time
faculty member at the Mount.
“I am very excited to join the Mount community,” she said. “My
colleagues have been supporting and welcoming, and my students have
been working hard.”
The goal of the Mount’s iROC seminar series is to “provide a
forum for Mount faculty, staff, and students to present research
proposals, preliminary data, and completed projects,” explained
Douglas A. Robinson, assistant professor of biology and coordinator
of the program.
The iROC presentations feature various academic fields.
Previous iROCs this semester have included “The Amazon – Past,
Present, and Future,” by Michael Boms, of the Mount’s natural
sciences division; “Women Environmental Artists: Unearthing
Connections and Context,” by speaker Maria Minickiello, the Mount’s
executive director of curriculum and instruction for online and
adult degree completion; “The Impact of Economic Cycles on the
Career Aspirations and Values of College Students,” by Moira Tolan,
professor of business, and A. Reza Hossain, associate professor of
economics; and “The Effect of the Holocaust on Jewish-Catholic
Relations,” by Sr. Peggy Murphy, OP, professor of religious