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Risk attitudes of children and adults: choices over small and large probability gains and losses

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  • William T. Harbaugh

    ()
    (University of Oregon Economics Department)

  • Kate Krause

    ()
    (University of New Mexico Economics Department)

  • Lise Vesterlund

    ()
    (University of Pittsburgh Economics Department)

Abstract

In this paper we examine how risk attitudes change with age. We present participants from age 5 to 64 with choices between simple gambles and the expected value of the gambles. The gambles are over both gains and losses, and vary in the probability of the non-zero payoff. Surprisingly, we find that many participants are risk seeking when faced with high-probability prospects over gains and risk averse when faced with small-probability prospects. Over losses we find the exact opposite. Children’s choices are consistent with the underweighting of low-probability events and the overweighting of high-probability ones. This tendency diminishes with age, and on average adults appear to use the objective probability when evaluating risky prospects.

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File URL: http://economics.uoregon.edu/papers/UO-1999-2_Harbaugh_Risk_Children.pdf
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Bibliographic Info

Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 1999-2.

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Length: 25
Date of creation: 01 Jan 1999
Date of revision:
Handle: RePEc:ore:uoecwp:1999-2

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  1. Camerer, Colin F, 1989. " An Experimental Test of Several Generalized Utility Theories," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 61-104, April.
  2. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  3. Holt, Charles A, 1986. "Preference Reversals and the Independence Axiom," American Economic Review, American Economic Association, vol. 76(3), pages 508-15, June.
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  5. Jianakoplos, Nancy Ammon & Bernasek, Alexandra, 1998. "Are Women More Risk Averse?," Economic Inquiry, Western Economic Association International, vol. 36(4), pages 620-30, October.
  6. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-17, March.
  7. John Kagel & Don MacDonald & Raymond Battalio, 1990. "Tests of 'fanning out' of indifference curves: Results from animal and human experiments," Framed Field Experiments 00165, The Field Experiments Website.
  8. Catherine C. Eckel & Philip J. Grossman & Nancy Lutz & V. Padmanbhan, 1997. "Playing it Safe: Men, Women, and Risk Aversion," Development Research Unit Working Paper Series archive-42, Monash University, Department of Economics.
  9. Wu, George & Gonzalez, Richard, 1998. "Common Consequence Conditions in Decision Making under Risk," Journal of Risk and Uncertainty, Springer, vol. 16(1), pages 115-39, April.
  10. Camerer, Colin, 1998. "Bounded Rationality in Individual Decision Making," Working Papers 1029, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Colin Camerer, 1998. "Bounded Rationality in Individual Decision Making," Experimental Economics, Springer, vol. 1(2), pages 163-183, September.
  12. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
  13. Machina, Mark J, 1987. "Choice under Uncertainty: Problems Solved and Unsolved," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 121-54, Summer.
  14. Camerer, Colin F & Ho, Teck-Hua, 1994. "Violations of the Betweenness Axiom and Nonlinearity in Probability," Journal of Risk and Uncertainty, Springer, vol. 8(2), pages 167-96, March.
  15. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
  16. Schoemaker, Paul J H, 1982. "The Expected Utility Model: Its Variants, Purposes, Evidence and Limitations," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 529-63, June.
  17. Isaac, R Mark & James, Duncan, 2000. " Just Who Are You Calling Risk Averse?," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 177-87, March.
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