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When imagining future wealth influences risky decision making

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  • Adam Eric Greenberg

Abstract

The body of literature on the relationship between risk aversion and wealth is extensive. However, little attention has been given to examining how future realizations of wealth might affect (current) risk decisions. Using paired lottery choice experiments and exposing subjects experimentally to imagined future wealth frames, I find that individuals are more risk-seeking if they are asked to imagine that they will be wealthy in the future. Yet I find that individuals are not significantly more risk-averse if they are asked to imagine that they will be poor in the future. I discuss theoretical and policy implications of these findings, including why savings rates are so low in the United States.

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Bibliographic Info

Article provided by Society for Judgment and Decision Making in its journal Judgment and Decision Making.

Volume (Year): 8 (2013)
Issue (Month): 3 (May)
Pages: 268-277

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Handle: RePEc:jdm:journl:v:8:y:2013:i:3:p:268-277

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Keywords: risky decision making; framing; wealth; savings; expected utility.;

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  8. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
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  17. Uwe Dulleck & Jacob Fell & Jonas Fooken, 2011. "Within-subject Intra- and Inter-method consistency of two experimental risk attitude elicitation," NCER Working Paper Series 74, National Centre for Econometric Research.
  18. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1994. "Income Risk, Borrowing Constraints and Portfolio Choice," CEPR Discussion Papers 888, C.E.P.R. Discussion Papers.
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