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Measuring Risk Aversion Model-Independently

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  • Maier, Johannes
  • Rüger, Maximilian

Abstract

We propose a new method to elicit individuals' risk preferences. Similar to Holt and Laury (2002), we use a simple multiple price-list format. However, our method is based on a general notion of increasing risk, which allows classifying individuals as more or less risk-averse without assuming a specic utility framework. In a laboratory experiment we compare both methods. Each classies individuals almost identically as risk-averse, -neutral, or -seeking. However, classications of individuals as more or less risk-averse dier substantially. Moreover, our approach yields higher measures of risk aversion, and only with our method these measures are robust toward increasing stakes.

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Bibliographic Info

Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 11873.

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Date of creation: 11 Oct 2010
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Handle: RePEc:lmu:muenec:11873

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Related research

Keywords: Risk Aversion; Multiple Price-List; Elicitation; Laboratory Experiment; Holt and Laury Method; Mean Preserving Spreads; Non-EUT; Increasing Risk;

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References

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  1. Steffen Andersen & Glenn Harrison & Morten Lau & E. Rutström, 2006. "Elicitation using multiple price list formats," Experimental Economics, Springer, vol. 9(4), pages 383-405, December.
  2. Karni, Edi & Safra, Zvi, 1990. "Rank-Dependent Probabilities," Economic Journal, Royal Economic Society, vol. 100(401), pages 487-95, June.
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  7. Calvet, Laurent E. & Sodini, Paolo, 2013. "Twin picks: Disentangling the determinants of risk-taking in household portfolios," SAFE Working Paper Series 13, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
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  11. Catherine C. Eckel & Philip J. Grossman, 2008. "Forecasting Risk Attitudes: An Experimental Study Using Actual and Forecast Gamble Choices," Development Research Unit Working Paper Series archive-01, Monash University, Department of Economics.
  12. Markus K. Brunnermeier & Stefan Nagel, 2008. "Do Wealth Fluctuations Generate Time-Varying Risk Aversion? Micro-evidence on Individuals," American Economic Review, American Economic Association, vol. 98(3), pages 713-36, June.
  13. Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November.
  14. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
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  17. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
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Cited by:
  1. Alison Booth & Lina Cardona Sosa & Patrick Nolen, 2011. "Gender Differences in Risk Aversion: Do Single-Sex Environments Affect their Development?," CEPR Discussion Papers 654, Centre for Economic Policy Research, Research School of Economics, Australian National University.

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