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Estimating risk attitudes in conventional and artefactual lab experiments: The importance of the underlying assumptions

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  • Drichoutis, Andreas C.
  • Koundouri, Phoebe

Abstract

In this paper we assess the importance of sample type in the estimation of risk preferences. We elicit and compare risk preferences from student subjects and subjects drawn from the general population, using the multiple price list method devised by Holt and Laury in their paper Risk Aversion and Incentive Effects (2002). We find evidence suggesting that under rank dependent utility, students exhibit approximately risk neutral preferences while subjects drawn from the general population exhibit risk loving preferences. However, when we assume an incorrect characterization of risk preferences, in particular we adopt the framework of expected utility theory, our estimation results lead to erroneous inferences. In this case, students are on average risk averse, while subjects drawn from the general population exhibit risk neutrality. Our results have implications for economic policy making under uncertainty.

Suggested Citation

  • Drichoutis, Andreas C. & Koundouri, Phoebe, 2012. "Estimating risk attitudes in conventional and artefactual lab experiments: The importance of the underlying assumptions," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-15.
  • Handle: RePEc:zbw:ifweej:201238
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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2012-38
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    References listed on IDEAS

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    Cited by:

    1. Antonio Filippin & Paolo Crosetto, 2016. "A Reconsideration of Gender Differences in Risk Attitudes," Management Science, INFORMS, pages 3138-3160.
    2. Paolo Crosetto & Antonio Filippin & Janna Heider, 2015. "A Study of Outcome Reporting Bias Using Gender Differences in Risk Attitudes," CESifo Economic Studies, CESifo, pages 239-262.
    3. Gonzalez Ramirez, M. Jimena & Meriggi, Niccolo, 2016. "A Study of Intra-household and Gender Differences in Risk Preferences and Their Effect on Household Investment Decisions in Rural Cameroon," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236078, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    risk aversion; CRRA; expo-power; rank dependent utility; multiple price list;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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