The Last Hurrah Effect: End-of-Period Temporal Landmarks Increase Financial Risk-Taking

Abstract

Are people more likely to take financial risks at the end of a work week? Using a unique panel dataset of peer-to-peer lending loans from Prosper Marketplace, Inc, we investigate whether temporal landmarks associated with the end of a period influence financial risk-taking. We find that investors are more likely to select riskier loans at the last day of a work week (i.e., Fridays) relative to other weekdays (Monday through Thursday). Our results are robust to the inclusion of investor experience, supply-side (e.g., loan availability) and demand-side (e.g., number of investors) control variables as well as time, and geographic fixed effects. Consistent with a mental accounting framework where end-of-period landmarks trigger a last hurrah effect, we find that alternative end-of-period markers (i.e., the Wednesday or Thursday preceding a holiday weekend, the last day of the month) also lead to significant increases in risk-taking. We use a variety of robustness checks as well as a laboratory experiment to rule out several alternative explanations. Finally, we demonstrate that this end-of-period effect has financial repercussions downstream yielding significantly worse returns relative to investments made on other days. We conclude by discussing how this can affect consumers’ financial decision making and policy.