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Context matters

Author

Listed:
  • Wenting Zhou

    () (University of York)

  • John Hey

    () (University of York)

Abstract

Abstract Eliciting the level of risk aversion of experimental subjects is of crucial concern to experimenters. In the literature there are a variety of methods used for such elicitation; the concern of the experiment reported in this paper is to compare them. The methods we investigate are the following: Holt–Laury price lists; pairwise choices, the Becker–DeGroot–Marschak method; allocation questions. Clearly their relative efficiency in measuring risk aversion depends upon the numbers of questions asked; but the method itself may well influence the estimated risk-aversion. While it is impossible to determine a ‘best’ method (as the truth is unknown) we can look at the differences between the different methods. We carried out an experiment in four parts, corresponding to the four different methods, with 96 subjects. In analysing the data our methodology involves fitting preference functionals; we use four, Expected Utility and Rank-Dependent Expected Utility, each combined with either a CRRA or a CARA utility function. Our results show that the inferred level of risk aversion is more sensitive to the elicitation method than to the assumed-true preference functional. Experimenters should worry most about context.

Suggested Citation

  • Wenting Zhou & John Hey, 2018. "Context matters," Experimental Economics, Springer;Economic Science Association, vol. 21(4), pages 723-756, December.
  • Handle: RePEc:kap:expeco:v:21:y:2018:i:4:d:10.1007_s10683-017-9546-z
    DOI: 10.1007/s10683-017-9546-z
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Decision making; Experimental design; Experimental methods; Preference measures; Risk taking;

    JEL classification:

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

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