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How Much is That Exam Grade Really Worth? An Estimation of Student Risk Aversion to Their Unknown Final College Course Grades

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  • Lanier Nalley
  • Andrew McKenzie

Abstract

This study created an experimental design with which students can empirically assess their risk behavior with respect to exam grades within an expected utility framework. Specifically, the authors analyzed students’ risk preferences associated with taking exams and earning a “risky” unknown grade versus not taking exams and instead obtaining a “sure” grade. Students have grade-choice decisions in nonhypothetical situations that impact their actual exam grades. Estimates indicate that the more risk-averse a student is, the more willing he or she is to accept a lower certain grade and not take an exam than to run the risk of actually taking it. We believe that this experimental setup and its binding results make it an easy but effective way of teaching the obtuse concept of risk aversion.

Suggested Citation

  • Lanier Nalley & Andrew McKenzie, 2011. "How Much is That Exam Grade Really Worth? An Estimation of Student Risk Aversion to Their Unknown Final College Course Grades," The Journal of Economic Education, Taylor & Francis Journals, vol. 42(4), pages 338-353, October.
    • Handle: RePEc:taf:jeduce:v:42:y:2011:i:4:p:338-353
    DOI: 10.1080/00220485.2011.606085
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    References listed on IDEAS

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    2. 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.
    3. Hayes, Dermot J. & Shogren, Jason F. & Fox, John A. & Kliebenstein, James, 1996. "Test Marketing New Food Products Using a Multi-Trial Nonhypothetical Experimental Auction with Market Discipline," Staff General Research Papers Archive 5227, Iowa State University, Department of Economics.
    4. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    5. Don L. Coursey & John L. Hovis & William D. Schulze, 1987. "The Disparity Between Willingness to Accept and Willingness to Pay Measures of Value," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(3), pages 679-690.
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