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Measuring Risk Attitudes in a Natural Experiment: Data from the Television Game Show LINGO

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Author Info
Beetsma, Roel
Schotman, Peter C

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Abstract

We use data from a television game show, involving elementary lotteries and substantial prize money, as a natural experiment to measure risk attitudes. We find robust evidence of substantial risk aversion. As an extension, we esimate the various models using transformations of the ‘true’ probabilities to decision weights. The estimated degree of risk aversion increases further, while players tend to overestimate substantially their chances of winning. Constant Relative Risk Aversion (CRRA) and Constant Absolute Risk Aversion (CARA) utility specifications perform approximately equally well, with CARA having the advantage that the players’ decisions do not depend on their initial wealth.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1893.

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Date of creation: Jun 1998
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Handle: RePEc:cpr:ceprdp:1893

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Keywords: decision weights expected utility LINGO natural experiments Risk Aversion

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Find related papers by JEL classification:
C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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