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Individual Risk Attitudes : New Evidence from a Large, Representative, Experimentally-Validated Survey

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Author Info
Thomas Dohmen
Armin Falk
David Huffman
Uwe Sunde
Jürgen Schupp
Gert G. Wagner

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Abstract

This paper presents new evidence on the distribution of risk attitudes in the population, using a novel set of survey questions and a representative sample of roughly 22,000 individuals living in Germany. Using a question that asks about willingness to take risks on an 11-point scale, we find evidence of heterogeneity across individuals, and show that willingness to take risks is negatively related to age and being female, and positively related to height and parental education. We test the behavioral relevance of this survey measure by conducting a complementary field experiment, based on a representative sample of 450 subjects, and find that the measure is a good predictor of actual risk-taking behavior. We then use a more standard lottery question to measure risk preference, and find similar results regarding heterogeneity and determinants of risk preferences. The lottery question makes it possible to estimate the coefficient of relative risk aversion for each individual in the sample. Using five questions about willingness to take risks in specific domains - car driving, financial matters, sports and leisure, career, and health - the paper also studies the impact of context on risk attitudes, finding a strong but imperfect correlation across contexts. Using data on a collection of risky behaviors from different contexts, including traffic offenses, portfolio choice, smoking, occupational choice, participation in sports, and migration, the paper compares the predictive power of all of the risk measures. Strikingly, the general risk question predicts all behaviors whereas the standard lottery measure does not. The best overall predictor for any specific behavior is typically the corresponding context-specific measure. These findings call into the question the current preoccupation with lottery measures of risk preference, and point to variation in risk perceptions as an understudied determinant of risky behavior.

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Publisher Info
Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 511.

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Length: 56 p.
Date of creation: 2005
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Handle: RePEc:diw:diwwpp:dp511

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Related research
Keywords: Risk preferences Preference stability Experimental validation Field experiment SOEP Gender differences Age Height Subjective well-being

Other versions of this item:

Find related papers by JEL classification:
D0 - Microeconomics - - General
D1 - Microeconomics - - Household Behavior
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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References listed on IDEAS
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