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

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Author Info

  • 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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Bibliographic Info

Article provided by Springer in its journal Experimental Economics.

Volume (Year): 5 (2002)
Issue (Month): 1 (June)
Pages: 53-84

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Handle: RePEc:kap:expeco:v:5:y:2002:i:1:p:53-84

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Web page: http://www.springerlink.com/link.asp?id=102888

Related research

Keywords: probability weighting; subjective expected utility; prospect theory; children; risk;

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  1. Colin Camerer, 1998. "Bounded Rationality in Individual Decision Making," Experimental Economics, Springer, vol. 1(2), pages 163-183, September.
  2. Catherine C. Eckel & Philip J. Grossman & Nancy Lutz & V. Padmanbhan, 1997. "Playing it Safe: Men, Women, and Risk Aversion," Development Research Unit Working Paper Series archive-42, Monash University, Department of Economics.
  3. Jianakoplos, Nancy Ammon & Bernasek, Alexandra, 1998. "Are Women More Risk Averse?," Economic Inquiry, Western Economic Association International, vol. 36(4), pages 620-30, October.
  4. Wu, George & Gonzalez, Richard, 1998. "Common Consequence Conditions in Decision Making under Risk," Journal of Risk and Uncertainty, Springer, vol. 16(1), pages 115-39, April.
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  8. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
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  12. Battalio, Raymond C & Kagel, John H & MacDonald, Don N, 1985. "Animals' Choices over Uncertain Outcomes: Some Initial Experimental Results," American Economic Review, American Economic Association, vol. 75(4), pages 597-613, September.
  13. Camerer, Colin F, 1989. " An Experimental Test of Several Generalized Utility Theories," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 61-104, April.
  14. Schoemaker, Paul J H, 1982. "The Expected Utility Model: Its Variants, Purposes, Evidence and Limitations," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 529-63, June.
  15. Camerer, Colin F & Ho, Teck-Hua, 1994. "Violations of the Betweenness Axiom and Nonlinearity in Probability," Journal of Risk and Uncertainty, Springer, vol. 8(2), pages 167-96, March.
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  17. Holt, Charles A, 1986. "Preference Reversals and the Independence Axiom," American Economic Review, American Economic Association, vol. 76(3), pages 508-15, June.
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