Hedging your bets and assessing the outcome

Hedging offsets the risk of an existing stake by counterbalancing it with a new stake – for example, complementing a bet on the race favorite with another bet on a promising upstart. In three experiments, the authors find that rather than assessing the hedge as a whole, people tend to react to the hedging outcome by focusing on either the original stake or the new one. The authors show that the hedger's focus is linked to a psychological motivation of whether to pursue safety and security by minimizing losses, known as a ‘prevention orientation’ or to pursue growth and advancement by maximizing gains, known as a ‘promotion orientation’. When the context is gambling, prevention-oriented people fixate on what happens to the status quo stake, whereas promotion-oriented people attend to the new stake (Experiment 1). The same conclusion emerges from a stock-investing context (Experiments 2a and 2b). Moreover, because selective attention to status quo and change is the mechanism at work, the authors find that a choice between options characterized as maintaining the status quo elicits greater discrimination among prevention-oriented than promotion-oriented people; similarly, a choice between options characterized as initiating change elicits greater discrimination among promotion-oriented than prevention-oriented people (Experiment 3). These effects drive behavioral intentions.