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Are People Risk Vulnerable?


  • Mickael Beaud

    () (Laboratoire Montpelliérain d'Economie Théorique et Appliquée (LAMETA), Université Montpellier 1, 34960 Montpellier, France)

  • Marc Willinger

    () (Laboratoire Montpelliérain d'Economie Théorique et Appliquée (LAMETA), Université Montpellier 1, 34960 Montpellier, France)


We report on a within-subject experiment, with substantial monetary incentives, designed to test whether or not people are risk vulnerable. In the experiment, subjects face the standard portfolio choice problem in which the investor has to allocate part of his wealth between one safe asset and one risky asset. We elicit risk vulnerability by observing each subject's portfolio choice in two different contexts that differ only by the presence or absence of an actuarially neutral background risk. Our main result is that most of the subjects are risk vulnerable: 81% chose a less risky portfolio when exposed to background risk. More precisely, 47% invested a strictly smaller amount in the risky asset, whereas 34% were indifferent. Furthermore, contrasting the predictions provided by competing decision-theoretic models, we conclude that expected utility theory best fits our experimental data. This paper was accepted by Uri Gneezy, behavioral economics.

Suggested Citation

  • Mickael Beaud & Marc Willinger, 2015. "Are People Risk Vulnerable?," Management Science, INFORMS, vol. 61(3), pages 624-636, March.
  • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:3:p:624-636

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    Cited by:

    1. repec:eee:matsoc:v:87:y:2017:i:c:p:72-74 is not listed on IDEAS
    2. Marc Willinger & Mohamed Ali Bchir & Carine Heitz, 2013. "Risk and time preferences under the threat of background risk: a case-study of lahars risk in central Java," Working Papers 13-08, LAMETA, Universitiy of Montpellier, revised May 2013.
    3. Zubanov, Nick & Cadsby, Bram & Song, Fei, 2017. "The "Sales Agent" Problem: Effort Choice under Performance Pay as Behavior toward Risk," IZA Discussion Papers 10542, Institute for the Study of Labor (IZA).
    4. Philomena M. Bacon & Anna Conte & Peter G. Moffatt, 2016. "A coefficient of risk vulnerability," University of East Anglia School of Economics Working Paper Series 2016-01, School of Economics, University of East Anglia, Norwich, UK..
    5. repec:eee:jbfina:v:89:y:2018:i:c:p:138-149 is not listed on IDEAS
    6. Charness, Gary & Gneezy, Uri & Halladay, Brianna, 2016. "Experimental methods: Pay one or pay all," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 141-150.
    7. repec:eee:transb:v:102:y:2017:i:c:p:1-21 is not listed on IDEAS
    8. Cécile Bazart & Mickael Beaud & Dimitri Dubois, 2017. "Whistleblowing vs random audit: An experimental test of relative effciency," Working Papers 17-04, LAMETA, Universitiy of Montpellier.


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