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Joint measurement of risk aversion, prudence and temperance

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  • Sebastian Ebert

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  • Daniel Wiesen

    ()

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    Abstract

    We 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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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse20_2010.pdf
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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse20_2010.

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    Length: 36
    Date of creation: Nov 2010
    Date of revision:
    Handle: RePEc:bon:bonedp:bgse20_2010

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    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

    Related research

    Keywords: Decision making under risk; laboratory experiment; prudence; risk aversion; temperance; gender differences;

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    Cited by:
    1. Kangoh Lee, 2012. "Uncertain indemnity and the demand for insurance," Theory and Decision, Springer, vol. 73(2), pages 249-265, August.
    2. Sebastian Ebert, 2013. "Moment characterization of higher-order risk preferences," Theory and Decision, Springer, vol. 74(2), pages 267-284, February.

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