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Moderate stake variations for risk and uncertainty, gains and losses: Methodological implications for comparative studies

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  • Vieider, Ferdinand M.
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    Abstract

    Risk attitudes are known to be sensitive to large stake variations. However, little is known on the sensitivity to moderate variations in stakes. This is important for studies that want to compare risk attitudes between countries or over time. I find that variations of ±20% affect only utility, while larger variations may affect also probability weighting. Surprisingly, the effect on weighting functions is larger for losses than for gains. It is also more pronounced for risk than for uncertainty.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0165176511005416
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    Bibliographic Info

    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 117 (2012)
    Issue (Month): 3 ()
    Pages: 718-721

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    Handle: RePEc:eee:ecolet:v:117:y:2012:i:3:p:718-721

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    Web page: http://www.elsevier.com/locate/ecolet

    Related research

    Keywords: Prospect theory; Stake effects; Experimental methodology;

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    1. Lefebvre, Mathieu & Vieider, Ferdinand M. & Villeval, Marie Claire, 2010. "Incentive effects on risk attitude in small probability prospects," Economics Letters, Elsevier, vol. 109(2), pages 115-120, November.
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    3. Johansson-Stenman, Olof & Mahmud, Minhaj & Martinsson, Peter, 2005. "Does stake size matter in trust games?," Economics Letters, Elsevier, vol. 88(3), pages 365-369, September.
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    6. Kachelmeier, Steven J & Shehata, Mohamed, 1992. "Examining Risk Preferences under High Monetary Incentives: Experimental Evidence from the People's Republic of China," American Economic Review, American Economic Association, vol. 82(5), pages 1120-41, December.
    7. Mohammed Abdellaoui & Olivier L’Haridon & Horst Zank, 2010. "Separating curvature and elevation: A parametric probability weighting function," Journal of Risk and Uncertainty, Springer, vol. 41(1), pages 39-65, August.
    8. Hans Binswanger, 1980. "Attitudes toward risk: Experimental measurement in rural india," Artefactual Field Experiments 00009, The Field Experiments Website.
    9. Mohammed Abdellaoui & Aurelien Baillon & Laetitia Placido & Peter P. Wakker, 2011. "The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation," American Economic Review, American Economic Association, vol. 101(2), pages 695-723, April.
    10. Mohammed Abdellaoui & Han Bleichrodt & Olivier L’Haridon, 2008. "A tractable method to measure utility and loss aversion under prospect theory," Journal of Risk and Uncertainty, Springer, vol. 36(3), pages 245-266, June.
    11. Helga Fehr-Duda & Adrian Bruhin & Thomas Epper & Renate Schubert, 2010. "Rationality on the rise: Why relative risk aversion increases with stake size," Journal of Risk and Uncertainty, Springer, vol. 40(2), pages 147-180, April.
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    13. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
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    Cited by:
    1. Vieider, Ferdinand M. & Chmura, Thorsten & Martinsson, Peter, 2012. "Risk attitudes, development, and growth: Macroeconomic evidence from experiments in 30 countries," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2012-401, Social Science Research Center Berlin (WZB).

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