Review of Religious Beliefs Gambling Attitudes and Financial Market Outcomes

Seminar paper from the year 2014 in the subject Business economics - Miscellaneous grade: 1.0 University Heidelberg Alfred-Weber-Institut of Economics course: Religion and Financial Behavior language: English abstract: 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 b