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Does Good Advice Come Cheap?: On the Assessment of Risk Preferences in the Lab and in the Field

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  • Andrea Leuermann
  • Benjamin Roth
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    Abstract

    Advice is important for decision making, especially in the financial sector. We investigate how individuals assess risk preferences of others given sociodemographic information or pictures. Both non-professionals and financial professionals participate in this artefactual field experiment. Subjects mainly rely on the other's self-assessment of risk preferences and on gender when forming the belief about someone else's risk preferences. On average, subjects consider themselves to be more risk-tolerant than the person they evaluate. Subjects use their own risk attitude as a reference point for predicting others' risk preferences. This false consensus effect is less pronounced for young professionals than for senior and non-professionals. Furthermore, financial professionals predict risk preferences more accurately compared to non-professionals.

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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.407883.de/diw_sp0475.pdf
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    Bibliographic Info

    Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 475.

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    Length: 57 p.
    Date of creation: 2012
    Date of revision:
    Handle: RePEc:diw:diwsop:diw_sp475

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    Keywords: Risk preferences; financial advice; artefactual field experiment; behavioral finance;

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    1. Yaw Nyarko & Andrew Schotter & Barry Sopher, 2006. "On the informational content of advice: a theoretical and experimental study," Economic Theory, Springer, vol. 29(2), pages 433-452, October.
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    19. Lisa R. Anderson & Jennifer M. Mellor, 2008. "Are Risk Preferences Stable? Comparing an Experimental Measure with a Validated Survey-Based Measure," Working Papers 74, Department of Economics, College of William and Mary.
    20. Hartog, Joop & Ferrer-i-Carbonell, Ada & Jonker, Nicole, 2002. "Linking Measured Risk Aversion to Individual Characteristics," Kyklos, Wiley Blackwell, vol. 55(1), pages 3-26.
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