IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Perceived Risk Attitudes: Relating Risk Perception to Risky Choice

Listed author(s):
  • Elke U. Weber

    (Department of Psychology, Townshend Hall, The Ohio State University, Columbus, Ohio 43210)

  • Richard A. Milliman

    (McKinsey & Company, 133 Peachtree Street, N.E., Atlanta, Georgia 30303)

Registered author(s):

    This paper provides empirical evidence that distinguishes between alternative conceptualizations of the risky decision making process. Two studies investigate whether cross-situational differences in choice behavior should be interpreted in the expected utility framework as differences in risk attitude (as measured by risk-averse vs. risk-seeking utility functions) or as differences in the perception of the relative riskiness of choice alternatives as permitted by risk-return interpretations of utility functions, leaving open the possibility of stable cross-situational risk preference as a personality trait. To this end, we propose a way of assessing a person's inherent risk preference that factors out individual and situational differences in risk perception. We document that a definition of risk aversion and risk seeking as the preference for options perceived to be more risky or less risky, respectively, provides the cross-situational stability to a person's risk preference that has eluded more traditional definitions. In Experiment 1, commuters changed their preferences for trains with risky arrival times when the alternatives involved gains in commuting time rather than losses. However, changes in preference coincided with changes in the perception of the riskiness of the choice alternatives, leaving the perceived risk attitudes of a majority of commuters unchanged. Experiment 2, a stockmarket investment task, investigated changes in risk perception, information acquisition, and stock selection as a function of outcome feedback. Investors' stock selections and their perception of the risk of the same stocks were different in a series of decisions in which they lost money than in a series in which they made money. As in Experiment 1, differences in choice and in risk perception were systematically related, such that the majority of investors had the same preference for perceived risk in both series of decisions. Our results provide empirical support for the usefulness of recent risk-return conceptualizations of risky choice (Bell [Bell, D. E. 1995. Risk, return, and utility. Management Sci. 41 23--30.], Jia and Dyer [Jia, J., J. S. Dyer. 1994. A standard measure of risk and risk-value models. Working paper, University of Texas at Austin.], M. Weber and Sarin 1993).

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 43 (1997)
    Issue (Month): 2 (February)
    Pages: 123-144

    in new window

    Handle: RePEc:inm:ormnsc:v:43:y:1997:i:2:p:123-144
    Contact details of provider: Postal:
    7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA

    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:43:y:1997:i:2:p:123-144. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.