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Measuring Individual Risk Attitudes in the Lab: Task or Ask? An Empirical Comparison

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  • Jan-Erik Lönnqvist
  • Markku Verkasalo
  • Gari Walkowitz
  • Philipp C. Wichardt

Abstract

This paper compares two prominent empirical measures of individual risk attitudes — the Holt and Laury (2002) lottery-choice task and the multi-item questionnaire advocated by Dohmen, Falk, Huffman, Schupp, Sunde and Wagner (2011) — with respect to (a) their within-subject stability over time (one year) and (b) their correlation with actual risk-taking behaviour in the lab — here the amount sent in a trust game (Berg, Dickaut, McCabe, 1995). As it turns out, the measures themselves are uncorrelated (both times) and, most importantly, only the questionnaire measure exhibits test-retest stability (? = .78), while virtually no such stability is found in the lottery-choice task. In addition, only the questionnaire measure shows the expected correlations with a Big Five personality measure and is correlated with actual risk-taking behaviour. The results suggest that the questionnaire is the more adequate measure of individual risk attitudes for the analysis of behaviour in economic (lab)experiments. Moreover, with respect to behaviour in the trust game, we find a high re-test stability of transfers (? = .70). This further supports the conjecture that trusting behaviour indeed has a component which itself is a stable individual characteristic (Glaeser, Laibson, Scheinkman and Soutter, 2000)

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1905.

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Length: 23 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:kie:kieliw:1905

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Keywords: Risk Attitudes; Trust; Personality; Lab Experiments;

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References

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  1. Dohmen Thomas & Falk Armin & Huffman David & Sunde Uwe, 2009. "Are Risk Aversion and Impatience Related to Cognitive Ability?," ROA Research Memorandum, Maastricht University, Research Centre for Education and the Labour Market (ROA) 007, Maastricht University, Research Centre for Education and the Labour Market (ROA).
  2. Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2003. "Risk averse behavior in generalized matching pennies games," Games and Economic Behavior, Elsevier, Elsevier, vol. 45(1), pages 97-113, October.
  3. Dohmen Thomas & Falk Armin & Huffman David & Sunde Uwe & Schupp Jürgen & Wagner Gert, 2009. "Individual Risk Attitudes: Measurement, Determinants and Behavioral Consequences," ROA Research Memorandum, Maastricht University, Research Centre for Education and the Labour Market (ROA) 007, Maastricht University, Research Centre for Education and the Labour Market (ROA).
  4. Matthew Rabin, 2001. "Risk Aversion and Expected Utility Theory: A Calibration Theorem," Levine's Working Paper Archive 7667, David K. Levine.
  5. John D. Hey & Andrea Morone & Ulrich Schmidt, 2007. "Noise and Bias in Eliciting Preferences," Kiel Working Papers, Kiel Institute for the World Economy 1386, Kiel Institute for the World Economy.
  6. Dohmen, Thomas J & Falk, Armin & Huffman, David & Sunde, Uwe, 2008. "The Intergenerational Transmission of Risk and Trust Attitudes," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6844, C.E.P.R. Discussion Papers.
  7. Lisa Anderson & Jennifer Mellor, 2009. "Are risk preferences stable? Comparing an experimental measure with a validated survey-based measure," Journal of Risk and Uncertainty, Springer, Springer, vol. 39(2), pages 137-160, October.
  8. Ernst Fehr, 2008. "On the Economics and Biology of Trust," SOEPpapers on Multidisciplinary Panel Data Research 154, DIW Berlin, The German Socio-Economic Panel (SOEP).
  9. Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2002. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Journal of Economic Theory, Elsevier, Elsevier, vol. 104(1), pages 247-272, May.
  10. Glenn W. Harrison & Eric Johnson & Melayne M. McInnes & E. Elisabet Rutstr�m, 2005. "Risk Aversion and Incentive Effects: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 95(3), pages 897-901, June.
  11. Thomas Dohmen & Armin Falk, 2011. "Performance Pay and Multidimensional Sorting: Productivity, Preferences, and Gender," American Economic Review, American Economic Association, American Economic Association, vol. 101(2), pages 556-90, April.
  12. Edward L. Glaeser & David I. Laibson & José A. Scheinkman & Christine L. Soutter, 2000. "Measuring Trust," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(3), pages 811-846, August.
    • Glaeser, Edward Ludwig & Laibson, David I. & Scheinkman, Jose A. & Soutter, Christine L., 2000. "Measuring Trust," Scholarly Articles 4481497, Harvard University Department of Economics.
  13. Daniel Houser & Daniel Schunk & Joachim Winter, 2009. "Distinguishing trust from risk: an anatomy of the investment game," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 450, Institute for Empirical Research in Economics - University of Zurich.
  14. Bohnet, Iris & Zeckhauser, Richard, 2003. "Trust, Risk and Betrayal," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp03-041, Harvard University, John F. Kennedy School of Government.
  15. Chetan Dave & Catherine Eckel & Cathleen Johnson & Christian Rojas, 2010. "Eliciting risk preferences: When is simple better?," Journal of Risk and Uncertainty, Springer, Springer, vol. 41(3), pages 219-243, December.
  16. Isaac, R Mark & James, Duncan, 2000. " Just Who Are You Calling Risk Averse?," Journal of Risk and Uncertainty, Springer, Springer, vol. 20(2), pages 177-87, March.
  17. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, Springer, vol. 10(2), pages 171-178, June.
  18. Ola Andersson & Håkan J. Holm & Jean-Robert Tyran & Erik Wengström, 2013. "Risk aversion relates to cognitive ability: Fact or Fiction?," Discussion Papers, University of Copenhagen. Department of Economics 13-10, University of Copenhagen. Department of Economics.
  19. Eckel, Catherine C. & Wilson, Rick K., 2004. "Is trust a risky decision?," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 55(4), pages 447-465, December.
  20. Nigel Nicholson & Emma Soane & Mark Fenton-O'Creevy & Paul Willman, 2005. "Personality and domain-specific risk taking," Journal of Risk Research, Taylor & Francis Journals, Taylor & Francis Journals, vol. 8(2), pages 157-176, March.
  21. Ben-Ner, Avner & Halldorsson, Freyr, 2010. "Trusting and trustworthiness: What are they, how to measure them, and what affects them," Journal of Economic Psychology, Elsevier, Elsevier, vol. 31(1), pages 64-79, February.
  22. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, American Economic Association, vol. 92(5), pages 1644-1655, December.
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Citations

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Cited by:
  1. Ola Andersson & Håkan J. Holm & Jean-Robert Tyran & Erik Wengström, 2013. "Risk aversion relates to cognitive ability: Fact or Fiction?," Discussion Papers, University of Copenhagen. Department of Economics 13-10, University of Copenhagen. Department of Economics.
  2. Thomas Buser & Muriel Niederle & Hessel Oosterbeek, 2012. "Gender, Competitiveness and Career Choices," NBER Working Papers 18576, National Bureau of Economic Research, Inc.
  3. Bernd Hardeweg & Lukas Menkhoff & Hermann Waibel, 2013. "Experimentally Validated Survey Evidence on Individual Risk Attitudes in Rural Thailand," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 61(4), pages 859 - 888.
  4. Charness, Gary & Gneezy, Uri & Imas, Alex, 2013. "Experimental methods: Eliciting risk preferences," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 87(C), pages 43-51.
  5. Garapin, A. & Muller, L. & Rahali, B., 2013. "Does trust mean giving and not risking? Experimental evidence from the trust game," Working Papers, Grenoble Applied Economics Laboratory (GAEL) 2013-12, Grenoble Applied Economics Laboratory (GAEL).
  6. Swee-Hoon Chuah & Robert Hoffmann & Jeremy Larner, 2014. "Elicitation effects in a multi-stage bargaining experiment," Experimental Economics, Springer, Springer, vol. 17(2), pages 335-345, June.
  7. Uwe Dulleck & Jacob Fell & Jonas Fooken, 2011. "Within-subject Intra- and Inter-method consistency of two experimental risk attitude elicitation," NCER Working Paper Series, National Centre for Econometric Research 74, National Centre for Econometric Research.
  8. Fabio Galeotti & Daniel John Zizzo, 2012. "Trust and trustworthiness with singleton groups," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS), School of Economics, University of East Anglia, Norwich, UK. 12-03, School of Economics, University of East Anglia, Norwich, UK..
  9. Drouvelis, Michalis & Nosenzo, Daniele, 2013. "Group identity and leading-by-example," Journal of Economic Psychology, Elsevier, Elsevier, vol. 39(C), pages 414-425.
  10. Gloede, Oliver & Menkhoff, Lukas & Waibel, Hermann, 2011. "Risk attitude and risk behavior: Comparing Thailand and Vietnam," Proceedings of the German Development Economics Conference, Berlin 2011, Verein für Socialpolitik, Research Committee Development Economics 33, Verein für Socialpolitik, Research Committee Development Economics.
  11. Vieider, Ferdinand M. & Lefebvre, Mathieu & Bouchouicha, Ranoua & Chmura, Thorsten & Hakimov, Rustamdjan & Krawczyk, Michal & Martinsson, Peter, 2013. "Common components of risk and uncertainty attitudes across contexts and domains: Evidence from 30 countries," Discussion Papers, WZB Junior Research Group Risk and Development, Social Science Research Center Berlin (WZB) SP II 2013-402, Social Science Research Center Berlin (WZB).
  12. Adam Eric Greenberg, 2013. "When imagining future wealth influences risky decision making," Judgment and Decision Making, Society for Judgment and Decision Making, Society for Judgment and Decision Making, vol. 8(3), pages 268-277, May.
  13. Howard, Gregory E. & Roe, Brian E., 2011. "Comparing the Risk Attitudes of U.S. and German Farmers," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland, European Association of Agricultural Economists 114528, European Association of Agricultural Economists.

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