Risk Attitude in Real Decision Problems
AbstractWe 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 InfoArticle provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.
Volume (Year): 8 (2008)
Issue (Month): 1 (March)
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Web page: http://www.degruyter.com
Other versions of this item:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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- Anna Conte & John D Hey & Peter G Moffatt, 2007.
"Mixture Models of Choice Under Risk,"
07/06, Department of Economics, University of York.
- Blavatskyy, Pavlo R., 2012. "Utility of a quarter-million," Economics Letters, Elsevier, vol. 117(3), pages 650-653.
- 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.
- Anna Conte & Peter G. Moffatt, 2010. "The econometric modeling of social Preferences," Jena Economic Research Papers 2010-042, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- 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.
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