Small-scale changes in wealth and attitudes toward risk
AbstractThis paper reports on an experiment designed to examine the effects of small-scale changes in wealth on risk attitudes. We find that the money given prior to risky choices does not induce a change of subjects' risk preferences. This result supports a key assumption in a recent literature over calibration critique of decision theories. Furthermore, as the money given to subjects in our experiment is administered in between risky tasks and framed as a reward rather than a windfall gain, our result suggests that experimental findings reporting that a prior monetary gain induces individuals to take more risks (house-money effect) may be more sensitive to prior experience with the risk-elicitation task or framing of the money than previously thought.
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Bibliographic InfoPaper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2010-11.
Date of creation: Jun 2010
Date of revision:
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risk aversion; wealth effects; risk-elicitation; house-money effect; narrow framing;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- 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-2010-07-17 (All new papers)
- NEP-CBE-2010-07-17 (Cognitive & Behavioural Economics)
- NEP-EXP-2010-07-17 (Experimental Economics)
- NEP-MIC-2010-07-17 (Microeconomics)
- NEP-UPT-2010-07-17 (Utility Models & Prospect Theory)
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