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Heterogeneity in Risky Choice Behaviour in a Broad Population

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  • von Gaudecker, Hans-Martin

    () (VU University Amsterdam)

  • van Soest, Arthur

    () (Tilburg University)

  • Wengström, Erik

    () (University of Copenhagen)

Abstract

We analyse risk preferences using an experiment with real incentives in a representative sample of 1,422 Dutch respondents. Our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics: Utility curvature, loss aversion, preferences towards the timing of uncertainty resolution, and the propensity to choose randomly rather than on the basis of preferences. We find that all four parameters contribute to explaining choice behaviour. The structural parameters are significantly associated with socio-economic variables, but it is essential to incorporate unobserved heterogeneity in each of them to match the rich variety of choice patterns in the data.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4022.

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Length: 39 pages
Date of creation: Feb 2009
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Handle: RePEc:iza:izadps:dp4022

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Keywords: risk aversion; loss aversion; uncertainty resolution; field experiments;

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Cited by:
  1. Noussair, C.N. & Trautmann, S.T. & Kuilen, G. van de, 2011. "Higher Order Risk Attitudes, Demographics, and Financial Decisions," Discussion Paper 2011-055, Tilburg University, Center for Economic Research.
  2. Butler, Jeff & Guiso, Luigi & Jappelli, Tullio, 2011. "The role of intuition and reasoning in driving aversion to risk and ambiguity," CEPR Discussion Papers 8334, C.E.P.R. Discussion Papers.
  3. Marco Cozzi, 2011. "Risk Aversion Heterogeneity, Risky Jobs and Wealth Inequality," Working Papers 1286, Queen's University, Department of Economics.
  4. Michèle Cohen & Jean-Marc Tallon & Jean-Christophe Vergnaud, 2009. "An experimental investigation of imprecision attitude and its relation with risk attitude and impatience," Documents de travail du Centre d'Economie de la Sorbonne 09029, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  5. Gicheva, Dora & Link, Albert N., 2011. "Leveraging Entrepreneurship through Private Investments: Does Gender Matter?," Working Papers 11-21, University of North Carolina at Greensboro, Department of Economics.
  6. Wieland Mueller & Eline van der Heijden & Tobias J. Klein & Jan Potters, 2011. "Nudges and Impatience: Evidence from a Large Scale Experiment," Vienna Economics Papers 1110, University of Vienna, Department of Economics.
  7. Quang Nguyen, 2011. "Does nurture matter: Theory and experimental investigation on the effect of working environment on risk and time preferences," Journal of Risk and Uncertainty, Springer, vol. 43(3), pages 245-270, December.
  8. Arrondel, Luc & Masson, André, 2011. "L'épargnant dans un monde en crise — Ce qui a changé," Opuscules du CEPREMAP, CEPREMAP, number 23.
  9. Michiel Bijlsma & Karen van der Wiel, 2012. "What Awareness? Consumer Perception of Bank Risk and Deposit Insurance," CPB Discussion Paper 205, CPB Netherlands Bureau for Economic Policy Analysis.
  10. Holm, Håkan J. & Opper, Sonja & Nee, Victor, 2012. "Entrepreneurs under Uncertainty: An Economic Experiment," Working Papers 2012:4, Lund University, Department of Economics.

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