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Estimating Risk Attitudes in Denmark: A Field Experiment

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Author Info
Glenn W. Harrison
Morten I. Lau
E. Elisabet Rutstrom
Abstract

We estimate individual risk attitudes using controlled experiments in the field in Denmark. These risk preferences are elicited by means of field experiments involving real monetary rewards. The experiments were carried out across Denmark using a representative sample of 253 people between 19 and 75 years of age. Risk attitudes are estimated for various individuals differentiated by socio-demographic characteristics such as income and age. Our results indicate that the average Dane is risk averse, and that risk neutrality is an inappropriate assumption to apply. We also find that risk attitudes vary significantly with respect to several important sociodemographic variables. Our results consistently support the need to recognize the heterogeneity of risk attitudes across individual subjects, as well as the need to use flexible utility functions that do not impose strong restrictions on estimates of risk attitudes on an a priori basis. These findings have important implications for the characterization of risk attitudes in policy applications, theoretical modeling, and experimental economics.

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Paper provided by The Field Experiments Website in its series Artefactual Field Experiments with number 0050.

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Length: 41 pages
Date of creation: 2004
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Handle: RePEc:feb:artefa:0050

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December. [Downloadable!] (restricted)
  2. Robson, Arthur J., 1996. "The Evolution of Attitudes to Risk: Lottery Tickets and Relative Wealth," Games and Economic Behavior, Elsevier, vol. 14(2), pages 190-207, June. [Downloadable!] (restricted)
  3. Matthew Rabin., 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Economics Working Papers E00-279, University of California at Berkeley. [Downloadable!]
  4. Donkers, Bas & van Soest, Arthur, 1999. "Subjective measures of household preferences and financial decisions," Journal of Economic Psychology, Elsevier, vol. 20(6), pages 613-642, December. [Downloadable!] (restricted)
  5. Bernard M.S. van Praag & Adam S. Booij, 2003. "Risk Aversion and the Subjective Time Discount Rate: A Joint Approach," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  6. Palacios-Huerta, Ignacio & Serrano, Roberto, 2006. "Rejecting small gambles under expected utility," Economics Letters, Elsevier, vol. 91(2), pages 250-259, May. [Downloadable!] (restricted)
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  7. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December. [Downloadable!]
  8. Maribeth Coller & Melonie Williams, 1999. "Eliciting Individual Discount Rates," Experimental Economics, Springer, vol. 2(2), pages 107-127, December. [Downloadable!] (restricted)
  9. Arie Kapteyn & Federica Teppa, 2003. "Hypothetical Intertemporal Consumption Choices," Economic Journal, Royal Economic Society, vol. 113(486), pages C140-C152, March. [Downloadable!] (restricted)
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  10. Harrison, Glenn W & Vinod, H D, 1992. "The Sensitivity Analysis of Applied General Equilibrium Models: Completely Randomized Factorial Sampling Designs," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 357-62, May. [Downloadable!] (restricted)
  11. Rubin, Paul H & Paul, Chris W, II, 1979. "An Evolutionary Model of Taste for Risk," Economic Inquiry, Oxford University Press, vol. 17(4), pages 585-96, October.
  12. Glenn W. Harrison & Ronald M. Harstad & E. Elisabet Rutstr–m, 2004. "Experimental Methods and Elicitation of Values," Experimental Economics, Springer, vol. 7(2), pages 123-140, 06. [Downloadable!]
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  13. Quizon, Jaime B & Binswanger, Hans P & Machina, Mark J, 1984. "Attitudes toward Risk: Further Remarks," Economic Journal, Royal Economic Society, vol. 94(373), pages 144-48, March. [Downloadable!] (restricted)
  14. Glenn W. Harrison & Thomas F. Rutherford & David G. Tarr & Angelo Gurgel, 2004. "Trade Policy and Poverty Reduction in Brazil," Working Papers Central Bank of Chile 276, Central Bank of Chile. [Downloadable!]
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  15. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Department of Economics, Working Paper Series 1034, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
  16. Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249.
  17. Carson, Richard T. & Hanemann, W. Michael, 2006. "Contingent Valuation," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 17, pages 821-936 Elsevier. [Downloadable!] (restricted)
  18. Hartog, Joop & Ferrer-i-Carbonell, Ada & Jonker, Nicole, 2002. "Linking Measured Risk Aversion to Individual Characteristics," Kyklos, Blackwell Publishing, vol. 55(1), pages 3-26.
  19. Matthew Rabin & Richard H. Thaler, 2001. "Anomalies: Risk Aversion," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 219-232, Winter. [Downloadable!] (restricted)
  20. B. Douglas Bernheim & John Karl Scholz & John B. Shoven, 1991. "Consumption Taxation in a General Equilibrium Model: How Reliable are Simulation Results?," NBER Chapters, in: National Saving and Economic Performance, pages 131-162 National Bureau of Economic Research, Inc. [Downloadable!]
  21. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  22. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60, pages 151. [Downloadable!] (restricted)
  23. Harrison, Glenn W. & Rutherford, Thomas F. & Tarr, David G., 2003. "Trade liberalization, poverty and efficient equity," Journal of Development Economics, Elsevier, vol. 71(1), pages 97-128, June. [Downloadable!] (restricted)
  24. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dohmen, Thomas J & Falk, Armin & Huffman, David & Schupp, Jürgen & Sunde, Uwe & Wagner, Gert Georg, 2006. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," CEPR Discussion Papers 5517, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutstrom, 2005. "Risk Attitudes, Randomization to Treatment, and Self-Selection Into Experiments," Artefactual Field Experiments 0052, The Field Experiments Website. [Downloadable!]
  3. Steffen Anderson & Glenn W. Harrison & Morten Igel Lau & E. Elisabet Rutstrom, 2004. "Preference Heterogeneity in Experiments: Comparing the Field and Lab," Artefactual Field Experiments 0002, The Field Experiments Website. [Downloadable!]
  4. Glenn W. Harrison & Eric Johnson & Melayne M. McInnes & E. Elisabet Rutstrom, 2005. "Risk Aversion and Incentive Effects: Comment," American Economic Review, American Economic Association, vol. 95(3), pages 897-901, June. [Downloadable!]
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