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Risk Attitude in Real Decision Problems

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Author Info
Fabrizio Botti (LUISS Guido Carli Rome)
Anna Conte (University of Rome I "La Sapienza", University of Rome II "Tor Vergata" and LUISS Guido Carli Rome)
Daniela Di Cagno (LUISS Guido Carli Rome)
Carlo D'Ippoliti (University of Rome I "La Sapienza" and LUISS Guido Carli Rome)

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Abstract

We use data from 298 showings of the television program "Affari Tuoi," which involves contestants making decisions between risky prospects with possible prizes of up to half a million euros, to estimate three models of decision-making under risk: Expected Utility, Rank-Dependent Expected Utility and Regret-Rejoice. We find that Regret-Rejoice does not significantly improve upon Expected Utility, while Rank-Dependent outperforms it. Interestingly, we find that the CARA specification fits significantly better than the conventionally-adopted CRRA specification. Crucially, we find a significant role for unobserved heterogeneity, implying that our estimates provide more superior estimates of risk attitude and of probability weighting than other studies.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Advances in Economic Analysis & Policy.

Volume (Year): 8 (2008)
Issue (Month): 1 ()
Pages: 1798-1798
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Related research
Keywords: field experiments risk attitude unobserved heterogeneity

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Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods

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    Other versions:
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    Other versions:
  10. Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November. [Downloadable!] (restricted)
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    Other versions:
  15. Matthew Rabin., 2000. "Diminishing Marginal Utility of Wealth Cannot Explain Risk Aversion," Economics Working Papers E00-287, University of California at Berkeley. [Downloadable!]
  16. Anna Conte & John D Hey & Peter G Moffatt, 2007. "Mixture Models of Choice Under Risk," Discussion Papers 07/06, Department of Economics, University of York. [Downloadable!]
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