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Risk Averters that Love Risk? Marginal Risk Aversion in Comparison to a Reference Gamble

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  • David R. Just
  • Travis J. Lybbert

Abstract

We propose an analytical distinction between standard risk aversion based on the valuation of a single gamble and marginal risk aversion based on the change in valuation between two gambles. We measure marginal risk aversion in two dimensions—mean and variance. Data from a field experiment is used to study marginal risk aversion. Our results suggest that individuals rely on a reference gamble when assessing marginal risk. Individual responses to marginal changes in mean and variance are nearly identical in direction and magnitude—suggesting that information on both standard and marginal risk aversion is needed to accurately model behavior. Copyright 2008, Oxford University Press.

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  • David R. Just & Travis J. Lybbert, 2008. "Risk Averters that Love Risk? Marginal Risk Aversion in Comparison to a Reference Gamble," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 612-626.
    • Handle: RePEc:oup:ajagec:v:91:y:2008:i:3:p:612-626
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2009.01273.x
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    Cited by:

    1. Luisa Menapace & Gregory Colson & Roberta Raffaelli, 2016. "A comparison of hypothetical risk attitude elicitation instruments for explaining farmer crop insurance purchases," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 43(1), pages 113-135.
    2. Drescher, Larissa S. & Stephan, Marette & Roosen, Jutta, 2012. "Consumer’s thoughts about and willingness to pay for traffic-light labeled food and financial products," 2012 AAEA/EAAE Food Environment Symposium 123200, Agricultural and Applied Economics Association.
    3. Liu, Elaine M. & Huang, JiKun, 2013. "Risk preferences and pesticide use by cotton farmers in China," Journal of Development Economics, Elsevier, vol. 103(C), pages 202-215.
    4. Drescher, Larissa S. & Marette, Stephan & Roosen, Jutta, 2011. "Consumer Acceptance of Traffic-light Labelling on Food vs. Financial Products," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114431, European Association of Agricultural Economists.
    5. Howard, Gregory E. & Roe, Brian E., 2011. "Comparing the Risk Attitudes of U.S. and German Farmers," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114528, European Association of Agricultural Economists.

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