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Measuring risk aversion among the urban poor in Kolkata, India

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  • Joseph Cook
  • Susmita Chatterjee
  • Dipika Sur
  • Dale Whittington
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    Abstract

    We examine risk preferences in an urban setting in a low-income developing country with nonstudent subjects by adapting the experimental approach of Holt and Laury (HL; 2002). We conducted 22 group experiments with 404 participants and used in-kind payoffs. The average respondent was ‘risk-averse’ (the midpoint of Constant Relative Risk Aversion (CRRA) intervals among participants was 0.53, roughly in line with most similar studies in poor countries). Like most other studies, we find weak correlations between risk aversion and most socio-economic characteristics. Importantly, a sizeable minority had difficulty understanding the experiment, and participants were influenced by the context in which the experiments occurred (these problems are not unique to our study). Our article adds to a growing literature that suggests that risk aversion elicitation approaches are sensitive to context and cognitive abilities of participants.

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    File URL: http://hdl.handle.net/10.1080/13504851.2011.644235
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

    Volume (Year): 20 (2013)
    Issue (Month): 1 (January)
    Pages: 1-9

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    Handle: RePEc:taf:apeclt:v:20:y:2013:i:1:p:1-9

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    1. Mahmud Yesuf & Randall A. Bluffstone, 2009. "Poverty, Risk Aversion, and Path Dependence in Low-Income Countries: Experimental Evidence from Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 91(4), pages 1022-1037.
    2. Galarza, Francisco, 2009. "Choices under Risk in Rural Peru," MPRA Paper 17708, University Library of Munich, Germany.
    3. Tomomi Tanaka & Colin F. Camerer & Quang Nguyen, 2010. "Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam," American Economic Review, American Economic Association, vol. 100(1), pages 557-71, March.
    4. Chetan Dave & Catherine Eckel & Cathleen Johnson & Christian Rojas, 2010. "Eliciting risk preferences: When is simple better?," Journal of Risk and Uncertainty, Springer, Springer, vol. 41(3), pages 219-243, December.
    5. Sujoy Chakravarty & Jaideep Roy, 2009. "Recursive expected utility and the separation of attitudes towards risk and ambiguity: an experimental study," Theory and Decision, Springer, Springer, vol. 66(3), pages 199-228, March.
    6. Hans Binswanger, 1980. "Attitudes toward risk: Experimental measurement in rural india," Artefactual Field Experiments 00009, The Field Experiments Website.
    7. Sarah Jacobson & Ragan Petrie, 2009. "Learning from mistakes: What do inconsistent choices over risk tell us?," Journal of Risk and Uncertainty, Springer, Springer, vol. 38(2), pages 143-158, April.
    8. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    9. Sachiko Miyata, 2003. "Household's risk attitudes in Indonesian villages," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 35(5), pages 573-583.
    10. Mette Wik & Tewodros Aragie Kebede & Olvar Bergland & Stein Holden, 2004. "On the measurement of risk aversion from experimental data," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(21), pages 2443-2451.
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