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Risk Preference Differentials of Small Groups and Individuals

Author

Listed:
  • Robert S. Shupp

    () (Department of Economics, Ball State University)

  • Arlington Williams

    () (Department of Economics, Indiana University)

Abstract

The risk preferences of three-person groups and individuals are compared using a non-sequential repeated-measures lottery experiment with $20 per-player win percentages varying from 10% to 90%. Analysis based on independent samples of certainty equivalent ratios (certainty equivalent/expected value) elicited using a maximum willingness-to-pay mechanism for fifty-two individuals and sixteen groups reveals that: 1) certainty equivalent ratios (CERs) vary significantly across lottery win percentages, 2) CER dispersion tends to decline as the lottery win percentage increases and is significantly smaller for groups than individuals in seven of the nine lotteries, 3) for the highest-risk lotteries, the average CERs submitted by groups are significantly smaller (more risk averse) than the average CERs submitted by individuals, 4) for the lowest-risk lotteries, the average CERs submitted by groups are approximately risk-neutral (CER=1) and somewhat larger than the average CERs submitted by individuals.

Suggested Citation

  • Robert S. Shupp & Arlington Williams, 2003. "Risk Preference Differentials of Small Groups and Individuals," Working Papers 200301, Ball State University, Department of Economics, revised Apr 2006.
  • Handle: RePEc:bsu:wpaper:200301
    as

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    References listed on IDEAS

    as
    1. Smith, Vernon L & Walker, James M, 1993. "Monetary Rewards and Decision Cost in Experimental Economics," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 245-261, April.
    2. Gary Bornstein & Ilan Yaniv, 1998. "Individual and Group Behavior in the Ultimatum Game: Are Groups More “Rational” Players?," Experimental Economics, Springer;Economic Science Association, vol. 1(1), pages 101-108, June.
    3. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    4. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    5. Kachelmeier, Steven J & Shehata, Mohamed, 1994. "Examining Risk Preferences under High Monetary Incentives: Reply," American Economic Review, American Economic Association, pages 1105-1106.
    6. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, pages 1644-1655.
    7. Ortona, Guido, 1994. "Examining Risk Preferences under High Monetary Incentives: Comment," American Economic Review, American Economic Association, pages 1104-1104.
    8. Kachelmeier, Steven J & Shehata, Mohamed, 1992. "Examining Risk Preferences under High Monetary Incentives: Experimental Evidence from the People's Republic of China," American Economic Review, American Economic Association, pages 1120-1141.
    9. Cason, Timothy N & Mui, Vai-Lam, 1997. "A Laboratory Study of Group Polarisation in the Team Dictator Game," Economic Journal, Royal Economic Society, vol. 107(444), pages 1465-1483, September.
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    More about this item

    Keywords

    lab experiments; risk preferences; group decisions; certainty equivalents;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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