Joint measurement of risk aversion, prudence and temperance
AbstractWe propose a method to measure the intensity of risk aversion, prudence (downside risk aversion) and temperance (outer risk aversion) in experiments. Higher-order risk compensations are defined within the proper risk apportionment model of Eeckhoudt and Schlesinger [American Economic Review, 96 (2006) 280] that are elicited using a multiple price list format. This approach is not based on expected utility theory. In our experiment we find evidence for risk aversion, prudence and temperance. Women demand higher risk compensations for all orders. The highest compensation is demanded for taking downside risk, not for being (second order) risk-loving. This highlights the importance of prudence when considering economic decisions under risk.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse20_2010.
Date of creation: Nov 2010
Date of revision:
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Decision making under risk; laboratory experiment; prudence; risk aversion; temperance; gender differences;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-04 (All new papers)
- NEP-EXP-2010-12-04 (Experimental Economics)
- NEP-NEU-2010-12-04 (Neuroeconomics)
- NEP-UPT-2010-12-04 (Utility Models & Prospect Theory)
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