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Exploring The Consistency Of Higher Order Risk Preferences

Author

Listed:
  • Alexander Haering
  • Timo Heinrich
  • Thomas Mayrhofer

Abstract

This study measures higher order risk preferences and their consistency. We explore the role of country differences, the variation of stakes, and the framing of lotteries. We observe a robust dichotomous pattern of choice behavior in China, the United States, and Germany. The majority of choices are consistent with mixed risk aversion or mixed risk‐loving behavior. We also find this pattern after a 10‐fold increase in the stakes. Finally, our results reveal that this pattern is strengthened if the lotteries are displayed in compound instead of reduced form. In a follow‐up study, we explore potential explanations for this framing effect.

Suggested Citation

  • Alexander Haering & Timo Heinrich & Thomas Mayrhofer, 2020. "Exploring The Consistency Of Higher Order Risk Preferences," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(1), pages 283-320, February.
    • Handle: RePEc:wly:iecrev:v:61:y:2020:i:1:p:283-320
    DOI: 10.1111/iere.12424
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    Citations

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    Cited by:

    1. Bougherara, Douadia & Friesen, Lana & Nauges, Céline, 2022. "Risk-taking and skewness-seeking behavior in a demographically diverse population," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 83-104.
    2. Mayrhofer, Thomas & Schmitz, Hendrik, 2025. "Prudence and prevention – empirical evidence," Economics Letters, Elsevier, vol. 257(C).
    3. Cary Deck & Rachel J. Huang & Larry Y. Tzeng & Lin Zhao, 2025. "A Simple Approach for Measuring Higher-Order Arrow-Pratt Coefficients of Risk Aversion," Management Science, INFORMS, vol. 71(8), pages 6979-6996, August.
    4. Haering, Alexander, 2021. "Framing decisions in experiments on higher-order risk preferences," Ruhr Economic Papers 913, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Ren, Tiantian & Kerstens, Kristiaan & Kumar, Saurav, 2024. "Risk-aversion versus risk-loving preferences in nonparametric frontier-based fund ratings: A buy-and-hold backtesting strategy," European Journal of Operational Research, Elsevier, vol. 319(1), pages 332-344.
    6. Irene Mussio & Maximiliano Sosa Andrés & Abdul H Kidwai, 2023. "Higher order risk attitudes in the time of COVID-19: an experimental study," Oxford Economic Papers, Oxford University Press, vol. 75(1), pages 163-182.
    7. Timo R. Lambregts & Paul Bruggen & Han Bleichrodt, 2021. "Correction to: Insurance decisions under nonperformance risk and ambiguity," Journal of Risk and Uncertainty, Springer, vol. 63(3), pages 255-255, December.
    8. Bittner, Anika & Haering, Alexander & Heinrich, Timo & Mayrhofer, Thomas, 2024. "Revalidating a survey instrument for measuring risk preferences," Economics Letters, Elsevier, vol. 242(C).
    9. Matteo Benuzzi & Matteo Ploner, 2024. "Skewness-seeking behavior and financial investments," Annals of Finance, Springer, vol. 20(1), pages 129-165, March.
    10. Douadia Bougherara & Lana Friesen & Céline Nauges, 2021. "Risk Taking with Left- and Right-Skewed Lotteries," Journal of Risk and Uncertainty, Springer, vol. 62(1), pages 89-112, February.
    11. Sebastian Ebert & Paul Karehnke, 2025. "First-Order Prudence and Its Implications for Precautionary Savings and the Risk-Free Rate," Operations Research, INFORMS, vol. 73(6), pages 3156-3172, November.
    12. Irene Mussio & Angela C.M. de Oliveira, 2022. "The effect of additional background risk on mixed risk behavior," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 6(S1), pages 85-92, July.
    13. Yin, Yongjin & Meng, Shengwang, 2025. "Self-protection under Nth-degree risk increase of random unit cost," Insurance: Mathematics and Economics, Elsevier, vol. 122(C), pages 137-142.
    14. Emanuela Giacomini & Nicoletta Marinelli & Luca Riccetti, 2023. "The impact at stake: Risk and return in publicly listed social impact firms," Business Ethics, the Environment & Responsibility, John Wiley & Sons, Ltd., vol. 32(2), pages 713-741, April.
    15. Morten I. Lau & Hong Il Yoo, 2025. "Structural Estimation of Higher Order Risk Preferences," Econometrica, Econometric Society, vol. 93(5), pages 1855-1883, September.
    16. Camille Cornand & Maria Alejandra Erazo Diaz & Béatrice Rey & Adam Zylbersztejn, 2023. "On the robustness of higher order attitudes to ambiguity framing," Working Papers hal-04316734, HAL.
    17. Timo Heinrich & Jason Shachat, 2020. "The development of risk aversion and prudence in Chinese children and adolescents," Journal of Risk and Uncertainty, Springer, vol. 61(3), pages 263-287, December.

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