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Are Risk-Attitudes Related Across Domains and Response Modes?

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Author Info

  • Paul J. H. Schoemaker

    (Graduate School of Business, University of Chicago, 1101 East 58th Street, Chicago, Illinois 60637)

Abstract

This paper examines experimentally the nature of people's risk-attitudes across different payoff domains and response modes. Only simple gambles are examined, entailing just two monetary outcomes. The main issue of interest is to what extent risk-preferences in one domain or response mode predict anything (beyond chance) about risk-preferences in another domain or mode. Three domains are examined: gain, mixed and loss. The three response modes used are certainty equivalence (CE), probability equivalence (PE) and outcome equivalence (OE) judgments. In general, weak associations were found among ordinal risk-preferences within-subjects across domains, especially with respect to losses. To make the parametric responses (i.e., the CE, PE and OE judgments) comparable across domains and subjects, linear as well as utility-based risk-measures were examined. In the gain and loss domains, the linear risk-premia measures exhibited higher CE-PE correlations (within domain) than the utility-based measures. Using a multitrait-multimethod comparison, the highest correlations were found within domains across response modes. The main findings are (1) strong risk-aversion for gain and mixed gambles, (2) risk-seeking for symmetric loss gambles, although less pronounced, (3) low correlation of risk-preferences within subjects across domains, (4) high convergent validity of response methods within domain, and (5) increased risk-aversion for loss (but not gain) gambles when using real payoffs.

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File URL: http://dx.doi.org/10.1287/mnsc.36.12.1451
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 36 (1990)
Issue (Month): 12 (December)
Pages: 1451-1463

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Handle: RePEc:inm:ormnsc:v:36:y:1990:i:12:p:1451-1463

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Related research

Keywords: risk-attitude; expected utility theory; response mode effects;

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Citations

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Cited by:
  1. Marc Scholten & Daniel Read, 2014. "Prospect theory and the “forgotten” fourfold pattern of risk preferences," Journal of Risk and Uncertainty, Springer, vol. 48(1), pages 67-83, February.
  2. Fagley, N. S. & Miller, Paul M., 1997. "Framing Effects and Arenas of Choice: Your Money or Your Life?," Organizational Behavior and Human Decision Processes, Elsevier, vol. 71(3), pages 355-373, September.
  3. Scott Fausti & Jeffrey Gillespie, 2006. "Measuring risk attitude of agricultural producers using a mail survey: how consistent are the methods?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(2), pages 171-188, 06.
  4. Manel Baucells & Antonio Villasís, 2010. "Stability of risk preferences and the reflection effect of prospect theory," Theory and Decision, Springer, vol. 68(1), pages 193-211, February.
  5. Deck, Cary & Lee, Jungmin & Reyes, Javier A. & Rosen, Christopher C., 2013. "A failed attempt to explain within subject variation in risk taking behavior using domain specific risk attitudes," Journal of Economic Behavior & Organization, Elsevier, vol. 87(C), pages 1-24.
  6. Andersson, Ola & Holm, Håkan J. & Tyran, Jean-Robert & Wengström, Erik, 2013. "Deciding for Others Reduces Loss Aversion," Working Paper Series 976, Research Institute of Industrial Economics.
  7. 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.
  8. Yitong Wang & Tianjun Feng & L. Keller, 2013. "A further exploration of the uncertainty effect," Journal of Risk and Uncertainty, Springer, vol. 47(3), pages 291-310, December.
  9. Brown Kruse, Jamie & Thompson, Mark A., 2001. "A comparison of salient rewards in experiments: money and class points," Economics Letters, Elsevier, vol. 74(1), pages 113-117, December.
  10. Vieider, Ferdinand M. & Truong, Nghi & Martinsson, Peter & Pham Khanh Nam & Martinsson, Peter, 2013. "Risk preferences and development revisited: A field experiment in Vietnam," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2013-403, Social Science Research Center Berlin (WZB).
  11. Baucells, Manel & Rata, Cristina, 2004. "Framing and stakes: A survey study of decisions under uncertainty," IESE Research Papers D/568, IESE Business School.
  12. Cary Deck & Jungmin Lee & Javier Reyes, 2010. "Personality and the Consistency of Risk Taking Behavior: Experimental Evidence," Working Papers 10-17, Chapman University, Economic Science Institute.
  13. Wei Lim & Joo Lee-Partridge & Soo Tan, 2008. "Revenue implication of auction value in k-price sealed-bid auctions: An experimental study," Marketing Letters, Springer, vol. 19(1), pages 25-38, March.
  14. Nathalie Etchart-Vincent & Olivier l’Haridon, 2011. "Monetary incentives in the loss domain and behavior toward risk: An experimental comparison of three reward schemes including real losses," Journal of Risk and Uncertainty, Springer, vol. 42(1), pages 61-83, February.
  15. Amit Saini & Kelly Martin, 2009. "Strategic Risk-Taking Propensity: The Role of Ethical Climate and Marketing Output Control," Journal of Business Ethics, Springer, vol. 90(4), pages 593-606, December.
  16. Christopher Schwand & Rudolf Vetschera & Lea Wakolbinger, 2010. "The influence of probabilities on the response mode bias in utility elicitation," Theory and Decision, Springer, vol. 69(3), pages 395-416, September.
  17. Pahlke, Julius & Strasser, Sebastian & Vieider, Ferdinand M., 2010. "Responsibility Effects in Decision Making under Risk," Discussion Papers in Economics 12115, University of Munich, Department of Economics.
  18. Peter Brooks & Horst Zank, 2005. "Loss Averse Behavior," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 301-325, December.

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