As religious faith plays a crucial role in people’s lives and largely influences their behavior as well as their decision making, the study of religiosity has a long tradition in many social science disciplines. Nevertheless, this relationship became only a topic of interest in modern economic studies since the last quarter of the twentieth century, when Ehrenberg and Azzi (1975) developed a utility-maximizing model taking into account both lifetime and afterlife utility (see, for example, Iannaccone, 1998; Jackson and Fleischer, 2007). In 2012, around 91% of the US American population professed to ”believe in God or a universal spirit” (Lugo, 2012), suggesting that if religion does shape economic behavior, it should also affect aggregate market outcome. Hence, studies investigate both microand macroeconomic effects of religiosity 2 , while some recent papers specifically address the relationship between religion and financial decisions: risk aversion and speculative behavior in particular are believed to depend on religious adherence. Not only have studies linked religiosity with a higher level of pure risk aversion in corporate decision making (Hilary and Hui, 2009), but also suggests current research that religious beliefs spill over in investment decisions due to different notions of gambling. For instance, Kumar (2009) found Catholics to be more willing to take on speculative risk by investing more in risky stocks than Protestants do. This paper aims to critically review Kumar, Page, and Spalt (2011) and structures as follows: firstly the theoretical framework of gambling in economics will be presented with a focus on cumulative prospect theory and its implications for asset pricing. Then follows a comprehensive overview of the theoretical background and empirical findings of the paper with focus on the influence of religion on investors’ portfolio decisions and on overpricing of initial public offerings. The subsequent section discusses the hypotheses of Kumar, Page, and Spalt (2011). Eventually, the last section concludes with a summary of the main findings in a broader context and with an outlook on future research.
Inhaltsverzeichnis (Table of Contents)
- 1 Introduction.
- 2 First insights into gambling in financial markets
- 2.1 Cumulative prospect theory
- 2.2 Asset pricing
- 3 Religious beliefs and gambling propensities
- 4 Results
- 4.1 Empirical Analysis
- 4.2 Investors' portfolio decisions
- 4.3 Employee stock option plans
- 4.4 IPO overpricing and lottery stocks
- 5 Conclusion.
- 6 Discussion
- 7 References
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to provide a comprehensive review of Kumar, Page, and Spalt (2011) to critically analyze the impact of heterogeneous gambling preferences on financial markets. It explores the theoretical framework of gambling in economics, focusing on cumulative prospect theory and its implications for asset pricing. The review examines the influence of religious beliefs on investors' portfolio decisions, specifically in relation to the overpricing of initial public offerings. The key objectives are to understand the theoretical foundation of the relationship between religion and gambling behavior, evaluate empirical findings regarding investors' portfolio decisions, and analyze the authors' hypotheses regarding the effects of religious beliefs on financial markets.
- Cumulative prospect theory and its role in explaining gambling preferences in financial markets
- The relationship between religious beliefs and gambling propensities
- The influence of religion on investors' portfolio decisions
- The impact of gambling behavior on asset pricing
- Empirical evidence on the relationship between religiosity and financial market outcomes
Zusammenfassung der Kapitel (Chapter Summaries)
- Chapter 1: Introduction This chapter sets the stage for the paper by discussing the influence of religious faith on economic behavior, particularly in the context of financial decision-making. It emphasizes the growing interest in the interplay of religiosity and financial markets, highlighting research that links religious adherence to risk aversion and investment choices.
- Chapter 2: First Insights into Gambling in Financial Markets This chapter introduces the theoretical framework for understanding gambling in economics. It examines cumulative prospect theory and its implications for asset pricing, contrasting this approach with the traditional expected utility theory. The chapter provides an overview of key models and their applications in explaining gambling preferences.
- Chapter 3: Religious Beliefs and Gambling Propensities This chapter delves into the theoretical link between religious beliefs and gambling behavior. It explores how religious values and principles might influence individuals' attitudes towards risk and uncertainty, providing a framework for understanding the potential impact of religion on financial decisions.
- Chapter 4: Results This chapter presents empirical evidence on the relationship between religiosity and financial market outcomes. It analyzes investors' portfolio decisions, including the role of religious beliefs in stock market investments, employee stock option plans, and the overpricing of initial public offerings.
Schlüsselwörter (Keywords)
This review examines the relationship between religion, gambling preferences, and financial market outcomes. Key terms include: cumulative prospect theory, asset pricing, risk aversion, religious beliefs, investor behavior, portfolio decisions, initial public offerings (IPOs), overpricing, and lottery stocks.
- Quote paper
- Maximiliane Brecht (Author), 2014, Review of "Religious Beliefs, Gambling Attitudes and Financial Market Outcomes", Munich, GRIN Verlag, https://www.grin.com/document/300166
