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

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Author Info
William T. Harbaugh () (University of Oregon Economics Department)
Kate Krause () (University of New Mexico Economics Department)
Lise Vesterlund () (University of Pittsburgh Economics Department)

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

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 25
Date of creation: 01 Jan 1999
Date of revision:
Handle: RePEc:ore:uoecwp:1999-2

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Postal: 1285 University of Oregon, 435 PLC, Eugene, OR 97403-1285
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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. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
  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.
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  4. 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. [Downloadable!] (restricted)
  5. Colin Camerer, 1998. "Bounded Rationality in Individual Decision Making," Experimental Economics, Springer, vol. 1(2), pages 163-183, September. [Downloadable!] (restricted)
  6. Holt, Charles A, 1986. "Preference Reversals and the Independence Axiom," American Economic Review, American Economic Association, vol. 76(3), pages 508-15, June. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. Battalio, Raymond C & Kagel, John H & MacDonald, Don N, 1985. "Animals' Choices over Uncertain Outcomes: Some Initial Experimental Results," American Economic Review, American Economic Association, vol. 75(4), pages 597-613, September. [Downloadable!] (restricted)
  10. Camerer, Colin, 1998. "Bounded Rationality in Individual Decision Making," Working Papers 1029, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  11. 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. [Downloadable!] (restricted)
  12. 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.
  13. Jianakoplos, Nancy Ammon & Bernasek, Alexandra, 1998. "Are Women More Risk Averse?," Economic Inquiry, Oxford University Press, vol. 36(4), pages 620-30, October.
  14. 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. [Downloadable!] (restricted)
  15. 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.
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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. William T. Harbaugh & Kate Krause & Steven G. Liday & Lise Vesterlund, 2001. "Trust in Children," University of Oregon Economics Department Working Papers 2002-10, University of Oregon Economics Department, revised 25 Mar 2002. [Downloadable!]
  2. Rick Harbaugh, 2005. "Prospect Theory or Skill Signaling?," Working Papers 2005-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
  3. Irwin P. Levin & Joshua A. Weller & Ashley A. Pederson & Lyndsay A. Harshman, 2007. "Age-related differences in adaptive decision making: Sensitivity to expected value in risky choice," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 2, pages 225-233, August. [Downloadable!]
  4. Antoni Bosch-Domènech & Joaquim Silvestre, 2006. "Averting risk in the face of large losses: Bernoulli vs. Tversky and Kahneman," Economics Working Papers 932, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  5. William T. Harbaugh & Kate Krause & Lise Vesterlund, 2002. "Prospect Theory in Choice and Pricing Tasks," University of Oregon Economics Department Working Papers 2002-02, University of Oregon Economics Department, revised 20 Aug 2007. [Downloadable!]
  6. Antoni Bosch-Domènech & Joaquim Silvestre, 2003. "Do the Wealthy Risk More Money? An Experimental Comparison," Economics Working Papers 692, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2005. [Downloadable!]
  7. Lise Vesterlund & Bill Harbaugh & Kate Krause, 2005. "The Fourfold Pattern of Risk Attitudes in Choice and Pricing Tasks," Working Papers 268, University of Pittsburgh, Department of Economics, revised Jan 2005.
  8. David Perez-Castrillo & Robert F. Veszteg, 2005. "Experimental Evidence on the Multibidding Mechanism," UFAE and IAE Working Papers 638.05, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  9. Antoni Bosch-Domènech & Joaquim Silvestre, 2002. "Reflections on Gains and Losses: A 2x2x7 Experiment," Economics Working Papers 640, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2005. [Downloadable!]
  10. P Brooks & H Zank, 2004. "Attitudes on Gain and Loss Lotteries: A Simple Experiment," The School of Economics Discussion Paper Series 0402, Economics, The University of Manchester. [Downloadable!]
  11. Matthias Sutter & Martin G. Kocher, 2004. "Age and the development of trust and reciprocity," Discussion Papers on Strategic Interaction 2004-01, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
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  12. Robert Hoffmann & Jin-Yee Tee, 2003. "Adolescent-Adult Interactions and Culture in the Ultimatum Game," Occasional Papers 4, Nottingham University Business School. [Downloadable!]
    Other versions:
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