Assessing the Construct Validity of Risk Attitude
AbstractTwo major approaches to measuring risk attitude are compared. One, based on the expected utility model is derived from responses to lotteries and direct scaling. The other measure is a psychometric approach based on Likert statements that produces a unidimensional risk attitude scale. The data are from computer-assisted interviews of 346 Dutch owner-managers of hog farms, who made decisions about their own businesses. While the measures demonstrate some degree of convergent validity, those measures based on lotteries were better predictors of actual market behavior. In contrast the psychometric scale showed more agreement to selfreported measures of innovativeness, market orientation, and the intention to reduce risk. In light of the higher predictive validity of lottery-based measurements, werecommend elicitation methods based on the expected utility paradigm.
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Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 46 (2000)
Issue (Month): 10 (October)
managerial decision making under risk; risk attitude; utility theory; psychometric scaling; nomological validity; price risk;
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