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Risk aversion, prudence and temperance: An experiment in gain and loss

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  • Brunette, Marielle
  • Jacob, Julien

Abstract

We characterize the individual's attitude towards risk, prudence and temperance in the gain and loss domains. We analyze the links between the three features of preferences for a given domain and between domains for each feature of preferences. Consequently, the reflection effect, the mixed risk aversion and the risk apportionment, are key concepts of our study. We also display some determinants for risk aversion, prudence and temperance in each domain. To do this, we conducted a lab experiment with students eliciting risk aversion, prudence and temperance in the two domains, and collected information about each subject's characteristics.

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  • Brunette, Marielle & Jacob, Julien, 2019. "Risk aversion, prudence and temperance: An experiment in gain and loss," Research in Economics, Elsevier, vol. 73(2), pages 174-189.
    • Handle: RePEc:eee:reecon:v:73:y:2019:i:2:p:174-189
    DOI: 10.1016/j.rie.2019.04.004
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    7. Ivan Paya & David Peel & Konstantinos Georgalos, 2020. "On the Predictions of Cumulative Prospect Theory for Third and Fourth Order Preferences," Working Papers 293574809, Lancaster University Management School, Economics Department.
    8. Schaap, Robbert-Jan, 2021. "The prevalence of prudence in a risky occupation," Economics Letters, Elsevier, vol. 207(C).

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    More about this item

    Keywords

    Risk aversion; Prudence; Temperance; Experiment; Correlations; Determinant;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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