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Risk Attitudes of Children and Adults: Choices Over Small and Large Probability Gains and Losses

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  • William Harbaugh
  • Kate Krause
  • Lise Vesterlund

Abstract

In this paper we examine how risk attitudes change with age. We present participants from age 5 to 64 with choices between simple gambles and the expected value of the gambles. The gambles are over both gains and losses, and vary in the probability of the non-zero payoff. Surprisingly, we find that many participants are risk seeking when faced with high-probability prospects over gains and risk averse when faced with small-probability prospects. Over losses we find the exact opposite. Children's choices are consistent with the underweighting of low-probability events and the overweighting of high-probability ones. This tendency diminishes with age, and on average adults appear to use the objective probability when evaluating risky prospects. Copyright Kluwer Academic Publishers 2002

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  • William Harbaugh & Kate Krause & Lise Vesterlund, 2002. "Risk Attitudes of Children and Adults: Choices Over Small and Large Probability Gains and Losses," Experimental Economics, Springer;Economic Science Association, vol. 5(1), pages 53-84, June.
    • Handle: RePEc:kap:expeco:v:5:y:2002:i:1:p:53-84
    DOI: 10.1023/A:1016316725855
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    More about this item

    Keywords

    probability weighting; subjective expected utility; prospect theory; children; risk;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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