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Risk Attitude in Real Decision Problems

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  • Botti Fabrizio

    ()
    (LUISS Guido Carli Rome)

  • Conte Anna

    ()
    (University of Rome I “La Sapienza”, University of Rome II “Tor Vergata” and LUISS Guido Carli Rome)

  • Di Cagno Daniela Teresa

    ()
    (LUISS Guido Carli Rome)

  • D'Ippoliti Carlo

    ()
    (University of Rome I “La Sapienza” and LUISS Guido Carli Rome)

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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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 8 (2008)
Issue (Month): 1 (March)
Pages: 1-32

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Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:6

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Cited by:
  1. Anna Conte & Peter Moffatt, 2014. "The econometric modelling of social preferences," Theory and Decision, Springer, vol. 76(1), pages 119-145, January.
  2. Botti, Fabrizio & Conte, Anna & Di Cagno, Daniela & D'Ippoliti, Carlo, 2009. "Lab and framed lab versus natural experiments: Evidence from a risky choice experiment," Research in Economics, Elsevier, vol. 63(4), pages 282-295, December.
  3. Nicolas de Roos & Yianis Sarafidis, 2010. "Decision making under risk in Deal or No Deal," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(6), pages 987-1027.
  4. 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.
  5. Blavatskyy, Pavlo R., 2012. "Utility of a quarter-million," Economics Letters, Elsevier, vol. 117(3), pages 650-653.

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