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Risk behavior can be capricious and may vary from month to month. We study 62 clients of a private bank in Northern Italy. The individuals are of special interest for several reasons. As active traders, they manage the value-at-risk (VaR) of a portion of their wealth portfolios. In addition, they act alone, i.e., without input from a financial adviser. Based on VaR-statistics, we find that, in general, the subjects become more risk-averse after suffering losses and more risk-seeking after experiencing gains. The monthly gains and losses that alter investor risk behavior represent true changes in wealth but are “on paper” only, i.e., not immediately realized. Our results allow several interpretations, but they are not at odds with a house money effect, or the possibility that overconfident investors trade on illusions. Rapidly shifting risk behavior in fast response to unstable circumstances weakens individual risk tolerance as a deep parameter and key construct of finance theory.

Risk behavior can be capricious and may vary from month to month. We study 62 clients of a private bank in Northern Italy. The individuals are of special interest for several reasons. As active traders, they manage the value-at-risk (VaR) of a portion of their wealth portfolios. In addition, they act alone, i.e., without input from a financial adviser. Based on VaR-statistics, we find that, in general, the subjects become more risk-averse after suffering losses and more risk-seeking after experiencing gains. The monthly gains and losses that alter investor risk behavior represent true changes in wealth but are ``on paper'' only, i.e., not immediately realized. Our results allow several interpretations, but they are not at odds with a house money effect, or the possibility that overconfident investors trade on illusions. Rapidly shifting risk behavior in fast response to unstable circumstances weakens individual risk tolerance as a deep parameter and key construct of finance theory.