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Joint measurement of risk aversion, prudence and temperance

Listed author(s):
  • Sebastian Ebert

    ()

  • Daniel Wiesen

    ()

We propose a method to measure the intensity of risk aversion, prudence (downside risk aversion) and temperance (outer risk aversion) in experiments. Higher-order risk compensations are defined within the proper risk apportionment model of Eeckhoudt and Schlesinger [American Economic Review, 96 (2006) 280] that are elicited using a multiple price list format. This approach is not based on expected utility theory. In our experiment we find evidence for risk aversion, prudence and temperance. Women demand higher risk compensations for all orders. The highest compensation is demanded for taking downside risk, not for being (second order) risk-loving. This highlights the importance of prudence when considering economic decisions under risk.

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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse20_2010.

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Length: 36
Date of creation: Nov 2010
Handle: RePEc:bon:bonedp:bgse20_2010
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Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany

Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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