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Risk Attitude in Real Decision Problems

  • Botti Fabrizio

    ()

    (LUISS Guido Carli Rome)

  • Conte Anna

    ()

    (University of Rome I “La Sapienza”, University of Rome II “Tor Vergata” and LUISS Guido Carli Rome)

  • Di Cagno Daniela Teresa

    ()

    (LUISS Guido Carli Rome)

  • D'Ippoliti Carlo

    ()

    (University of Rome I “La Sapienza” and LUISS Guido Carli Rome)

We use data from 298 showings of the television program "Affari Tuoi," which involves contestants making decisions between risky prospects with possible prizes of up to half a million euros, to estimate three models of decision-making under risk: Expected Utility, Rank-Dependent Expected Utility and Regret-Rejoice. We find that Regret-Rejoice does not significantly improve upon Expected Utility, while Rank-Dependent outperforms it. Interestingly, we find that the CARA specification fits significantly better than the conventionally-adopted CRRA specification. Crucially, we find a significant role for unobserved heterogeneity, implying that our estimates provide more superior estimates of risk attitude and of probability weighting than other studies.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 8 (2008)
Issue (Month): 1 (March)
Pages: 1-32

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Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:6
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