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Do the Wealthy Risk More Money? An Experimental Comparison

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  • Antoni Bosch
  • Joaquim Silvestre
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    Abstract

    Are poor people more or less likely to take money risks than wealthy folks? We find that risk attraction is more prevalent among the wealthy when the amounts of money at risk are small (not surprising, since ten dollars is a smaller amount for a wealthy person than for a poor one), but, interestingly, for the larger amounts of money at risk the fraction of the nonwealthy displaying risk attraction exceeds that of the wealthy. We also replicate our previous finding that many people display risk attraction for small money amounts, but risk aversion for large ones. We argue that preferences yielding risk attraction for small money amounts, together with risk aversion for larger amounts, at all levels of wealth, while contradicting the expected utility hypothesis, may be well-defined, independently of reference points, on the choice space.

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    Bibliographic Info

    Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 10.

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    Date of creation: Aug 2003
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    Handle: RePEc:bge:wpaper:10

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    Keywords: Risk Attraction; Risk Aversion; Wealth; Experiments;

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    References

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    1. Shavit, Tal & Sonsino, Doron & Benzion, Uri, 2001. "A comparative study of lotteries-evaluation in class and on the Web," Journal of Economic Psychology, Elsevier, Elsevier, vol. 22(4), pages 483-491, August.
    2. Donkers, Bas & Melenberg, Bertrand & Van Soest, Arthur, 2001. " Estimating Risk Attitudes Using Lotteries: A Large Sample Approach," Journal of Risk and Uncertainty, Springer, Springer, vol. 22(2), pages 165-95, March.
    3. Eckel, Catherine C. & Grossman, Philip J., 2008. "Differences in the Economic Decisions of Men and Women: Experimental Evidence," Handbook of Experimental Economics Results, Elsevier, Elsevier.
    4. Joseph Henrich & Richard McElreath, 2002. "Are peasants risk-averse decision makers?," Artefactual Field Experiments 00066, The Field Experiments Website.
    5. William Harbaugh & Kate Krause & Lise Vesterlund, 2002. "Risk attitudes of children and adults: Choices over small and large probability gains and losses," Artefactual Field Experiments 00055, The Field Experiments Website.
    6. Bosch-Domenech, Antoni & Silvestre, Joaquim, 1999. "Does risk aversion or attraction depend on income? An experiment," Economics Letters, Elsevier, vol. 65(3), pages 265-273, December.
    7. Thomas S. Dee & William N. Evans, 2001. "Teens and Traffic Safety," NBER Chapters, in: Risky Behavior among Youths: An Economic Analysis, pages 121-166 National Bureau of Economic Research, Inc.
    8. Bruno Jullien & Bernard Salanié, 1997. "Estimating Preferences under Risk : The Case of Racetrack Bettors," Working Papers, Centre de Recherche en Economie et Statistique 97-39, Centre de Recherche en Economie et Statistique.
    9. Robson, Arthur J, 1992. "Status, the Distribution of Wealth, Private and Social Attitudes to Risk," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 837-57, July.
    10. Antoni Bosch-Domènech & Joaquim Silvestre, 2002. "Reflections on gains and losses: A 2x2x7 experiment," Economics Working Papers 640, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2005.
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