On Taking a Skewed Risk More than Once

Penny-picking refers to the often-observed phenomenon of repeatedly taking negatively skewed risks and seems directly at odds with evidence on (positive-)skewness-seeking as observed in static settings. We show that penny-picking may not only occur despite skewness-seeking, but—seemingly paradoxically—because of skewness-seeking. With sufficient time available, risks with arbitrary negative skewness can be gambled in such a way that, overall, skewness is positive. Therefore, classical behavioral theories like prospect theory straightforwardly explain penny-picking. More generally, we show that the versatile dynamics of skewness reconcile apparent preference reversals concerning the avoidance and acceptance of (skewed and non-skewed) risks.