IDEAS home Printed from https://ideas.repec.org/a/kap/jrisku/v56y2018i1d10.1007_s11166-018-9274-6.html
   My bibliography  Save this article

Complexity in risk elicitation may affect the conclusions: A demonstration using gender differences

Author

Listed:
  • Gary Charness

    (University of California Santa Barbara)

  • Catherine Eckel

    (Texas A&M University)

  • Uri Gneezy

    (University of California San Diego
    University of Amsterdam)

  • Agne Kajackaite

    (WZB Berlin Social Science Center)

Abstract

The Holt and Laury (American Economic Review, 92(5), 1644–1655, 2002) mechanism (HL) is the most widely-used method for eliciting risk preferences in economics. Participants typically make ten decisions with different variance options, with one of these choices randomly chosen for actual payoff. For this mechanism to provide an accurate measure of risk aversion, participants need to understand the choices and give consistent responses. Unfortunately, inconsistent and even dominated choices are often made. Can these mistakes lead to a misrepresentation of economic phenomena? We use gender differences in risk taking to test this question. In contrast to many findings in the literature, HL results typically do not find significant gender differences. We compare the HL approach, where we replicate the lack of significant gender differences, with a simpler presentation of the same choices in which participants make only one of the ten HL decisions; this simpler presentation yields strong gender differences indicating that women are more risk averse than men. We also find gender differences in the consistency of decisions. We believe that the results found in the simpler case are more reflective of underlying preferences, since the task is considerably easier to understand. Our results suggest that the complexity and structure of the risk elicitation mechanism can affect measured risk preferences. The issue of complexity and comprehension is also likely to be present with elicitation mechanisms in other realms of economic preferences.

Suggested Citation

  • Gary Charness & Catherine Eckel & Uri Gneezy & Agne Kajackaite, 2018. "Complexity in risk elicitation may affect the conclusions: A demonstration using gender differences," Journal of Risk and Uncertainty, Springer, vol. 56(1), pages 1-17, February.
  • Handle: RePEc:kap:jrisku:v:56:y:2018:i:1:d:10.1007_s11166-018-9274-6
    DOI: 10.1007/s11166-018-9274-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11166-018-9274-6
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/s11166-018-9274-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Antonio Filippin & Paolo Crosetto, 2016. "A Reconsideration of Gender Differences in Risk Attitudes," Management Science, INFORMS, vol. 62(11), pages 3138-3160, November.
    2. John Hey & Andrea Morone & Ulrich Schmidt, 2009. "Noise and bias in eliciting preferences," Journal of Risk and Uncertainty, Springer, vol. 39(3), pages 213-235, December.
    3. Andersson, Ola & Tyran, Jean-Robert & Wengström, Erik & Holm, Håkan J., 2013. "Risk Aversion Relates to Cognitive Ability: Fact or Fiction?," Working Paper Series 964, Research Institute of Industrial Economics.
    4. Uri Gneezy & Jan Potters, 1997. "An Experiment on Risk Taking and Evaluation Periods," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 631-645.
    5. Charness, Gary & Viceisza, Angelino, 2016. "Three Risk-elicitation Methods in the Field - Evidence from Rural Senegal," Review of Behavioral Economics, now publishers, vol. 3(2), pages 145-171, July.
    6. James Cox & Vjollca Sadiraj & Ulrich Schmidt, 2015. "Paradoxes and mechanisms for choice under risk," Experimental Economics, Springer;Economic Science Association, vol. 18(2), pages 215-250, June.
    7. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    8. Steffen Andersen & Glenn Harrison & Morten Lau & E. Rutström, 2009. "Elicitation using multiple price list formats," Experimental Economics, Springer;Economic Science Association, vol. 12(3), pages 365-366, September.
    9. Yoram Halevy, 2007. "Ellsberg Revisited: An Experimental Study," Econometrica, Econometric Society, vol. 75(2), pages 503-536, March.
    10. Catherine C. Eckel & Philip J. Grossman, 2008. "Forecasting Risk Attitudes: An Experimental Study Using Actual and Forecast Gamble Choices," Monash Economics Working Papers archive-01, Monash University, Department of Economics.
    11. Charness, Gary & Gneezy, Uri & Imas, Alex, 2013. "Experimental methods: Eliciting risk preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 87(C), pages 43-51.
    12. Timothy N. Cason & Charles R. Plott, 2014. "Misconceptions and Game Form Recognition: Challenges to Theories of Revealed Preference and Framing," Journal of Political Economy, University of Chicago Press, vol. 122(6), pages 1235-1270.
    13. Rachel Croson & Uri Gneezy, 2009. "Gender Differences in Preferences," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 448-474, June.
    14. Chetan Dave & Catherine Eckel & Cathleen Johnson & Christian Rojas, 2010. "Eliciting risk preferences: When is simple better?," Journal of Risk and Uncertainty, Springer, vol. 41(3), pages 219-243, December.
    15. Charness, Gary & Gneezy, Uri, 2012. "Strong Evidence for Gender Differences in Risk Taking," Journal of Economic Behavior & Organization, Elsevier, vol. 83(1), pages 50-58.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chi Wai Yu & Y. Jane Zhang & Sharon Xuejing Zuo, 2021. "Multiple Switching and Data Quality in the Multiple Price List," The Review of Economics and Statistics, MIT Press, vol. 103(1), pages 136-150, March.
    2. Filiz, Ibrahim & Nahmer, Thomas & Spiwoks, Markus & Gubaydullina, Zulia, 2020. "Measurement of risk preference," Journal of Behavioral and Experimental Finance, Elsevier, vol. 27(C).
    3. Biener, Christian & Eling, Martin & Lehmann, Martin, 2020. "Balancing the desire for privacy against the desire to hedge risk," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 608-620.
    4. Michele Garagnani, 2020. "The predictive power of risk elicitation tasks," ECON - Working Papers 362, Department of Economics - University of Zurich.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Utteeyo Dasgupta & Subha Mani & Smriti Sharma & Saurabh Singhal, 2016. "Eliciting risk preferences: Firefighting in the field," WIDER Working Paper Series wp-2016-47, World Institute for Development Economic Research (UNU-WIDER).
    2. Antonio Filippin & Paolo Crosetto, 2016. "A Reconsideration of Gender Differences in Risk Attitudes," Management Science, INFORMS, vol. 62(11), pages 3138-3160, November.
    3. Menkhoff, Lukas & Sakha, Sahra, 2017. "Estimating risky behavior with multiple-item risk measures," Journal of Economic Psychology, Elsevier, vol. 59(C), pages 59-86.
    4. Paolo Crosetto & Antonio Filippin, 2016. "A theoretical and experimental appraisal of four risk elicitation methods," Experimental Economics, Springer;Economic Science Association, vol. 19(3), pages 613-641, September.
    5. Menkhoff, Lukas & Sakha, Sahra, 2014. "Multiple-item risk measures," Kiel Working Papers 1980, Kiel Institute for the World Economy (IfW).
    6. Antonio FILIPPIN & Paolo CROSETTO, 2014. "A Reconsideration of Gender Differences in Risk Attitudes," Departmental Working Papers 2014-01, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    7. Holden, Stein T. & Tilahun, Mesfin, 2020. "Endowment Effects and Loss Aversion in the Risky Investment Game," CLTS Working Papers 1/20, Norwegian University of Life Sciences, Centre for Land Tenure Studies.
    8. Paolo Crosetto & Antonio Filippin, 2013. "The “bomb” risk elicitation task," Journal of Risk and Uncertainty, Springer, vol. 47(1), pages 31-65, August.
    9. Dasgupta, Utteeyo & Mani, Subha & Sharma, Smriti & Singhal, Saurabh, 2016. "Eliciting Risk Preferences: Firefighting in the Field," IZA Discussion Papers 9765, Institute of Labor Economics (IZA).
    10. Tamás Csermely & Alexander Rabas, 2016. "How to reveal people’s preferences: Comparing time consistency and predictive power of multiple price list risk elicitation methods," Journal of Risk and Uncertainty, Springer, vol. 53(2), pages 107-136, December.
    11. Giuseppe Attanasi & Nikolaos Georgantzís & Valentina Rotondi & Daria Vigani, 2018. "Lottery- and survey-based risk attitudes linked through a multichoice elicitation task," Theory and Decision, Springer, vol. 84(3), pages 341-372, May.
    12. Paolo Crosetto & Antonio Filippin, 2013. "A Theoretical and Experimental Appraisal of Five Risk Elicitation Methods," SOEPpapers on Multidisciplinary Panel Data Research 547, DIW Berlin, The German Socio-Economic Panel (SOEP).
    13. Galizzi, Matteo M. & Machado, Sara R. & Miniaci, Raffaele, 2016. "Temporal stability, cross-validity, and external validity of risk preferences measures: experimental evidence from a UK representative sample," LSE Research Online Documents on Economics 67554, London School of Economics and Political Science, LSE Library.
    14. Paolo Crosetto & Antonio Filippin & Janna Heider, 2015. "A Study of Outcome Reporting Bias Using Gender Differences in Risk Attitudes," CESifo Economic Studies, CESifo, vol. 61(1), pages 239-262.
    15. Ola Andersson & Håkan J. Holm & Jean-Robert Tyran & Erik Wengström, 2016. "Deciding for Others Reduces Loss Aversion," Management Science, INFORMS, vol. 62(1), pages 29-36, January.
    16. Holzmeister, Felix & Stefan, Matthias, 2019. "The Risk Elicitation Puzzle Revisited: Across-Methods (In)consistency?," OSF Preprints pj9u2, Center for Open Science.
    17. Lönnqvist, Jan-Erik & Verkasalo, Markku & Walkowitz, Gari & Wichardt, Philipp C., 2015. "Measuring individual risk attitudes in the lab: Task or ask? An empirical comparison," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 254-266.
    18. Felix Holzmeister & Matthias Stefan, 2019. "The risk elicitation puzzle revisited: Across-methods (in)consistency?," Working Papers 2019-19, Faculty of Economics and Statistics, University of Innsbruck.
    19. Crosetto, P. & Filippin, A., 2017. "Safe options induce gender differences in risk attitudes," Working Papers 2017-05, Grenoble Applied Economics Laboratory (GAEL).
    20. Charness, Gary & Gneezy, Uri & Imas, Alex, 2013. "Experimental methods: Eliciting risk preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 87(C), pages 43-51.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jrisku:v:56:y:2018:i:1:d:10.1007_s11166-018-9274-6. 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: . General contact details of provider: http://www.springer.com .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.