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On a Simple Survey Measure of Individual Risk Aversion

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  • Joop Hartog
  • Ada Ferrer-i-Carbonell
  • Nicole Jonker

Abstract

We ask individuals for their reservation price of a specified lottery and deduce their Arrow-Pratt measure of risk aversion. This allows direct testing of common hy-poth-eses on risk atti-tudes in three datasets. We find that risk aversion indeed falls with income and wealth. Entre-preneurs are less risk averse than employees, civil servants are more risk averse than private sector employees, and women are more risk averse than men. We analyze six different specifications of the lottery question in a single data set and find quite consistent results. We conclude that a simple lottery ques-tion is a promising survey in-strument to extract differ-ences in risk attitudes among individuals.

Suggested Citation

  • Joop Hartog & Ada Ferrer-i-Carbonell & Nicole Jonker, 2000. "On a Simple Survey Measure of Individual Risk Aversion," CESifo Working Paper Series 363, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_363
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    References listed on IDEAS

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    2. Hans P. Binswanger, 1980. "Attitudes Toward Risk: Experimental Measurement in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 395-407.
    3. van de Stadt, Huib & Antonides, Gerrit & van Praag, Bernard M. S., 1984. "Empirical testing of the expected utility model," Journal of Economic Psychology, Elsevier, vol. 5(1), pages 17-29, March.
    4. Friedman,Daniel & Sunder,Shyam, 1994. "Experimental Methods," Cambridge Books, Cambridge University Press, number 9780521456821, April.
    5. Binswanger, Hans P, 1981. "Attitudes toward Risk: Theoretical Implications of an Experiment in Rural India," Economic Journal, Royal Economic Society, vol. 91(364), pages 867-890, December.
    6. Bosma, N. & van Praag, M. & de Wit, G., 2000. "Determinants of Successful Entrepreneurship," Papers 0002/e, NEUHUYS - RESEARCH INSTITUTE FOR SMALL AND MEDIUM.
    7. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-1289, November.
    8. Evans, Dorla A, 1997. "The Role of Markets in Reducing Expected Utility Violations," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 622-636, June.
    9. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    10. Robert B. Barsky & F. Thomas Juster & Miles S. Kimball & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 537-579.
    11. Battalio, Raymond C & Kagel, John H & Jiranyakul, Komain, 1990. "Testing between Alternative Models of Choice under Uncertainty: Some Initial Results," Journal of Risk and Uncertainty, Springer, vol. 3(1), pages 25-50, March.
    12. Don Bellante & Albert N. Link, 1981. "Are Public Sector Workers More Risk Averse Than Private Sector Workers?," ILR Review, Cornell University, ILR School, vol. 34(3), pages 408-412, April.
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    Citations

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    Cited by:

    1. André de Palma & Nathalie Picard, 2006. "Route Choice Behaviour with Risk-Averse Users," Chapters,in: Spatial Dynamics, Networks and Modelling, chapter 7 Edward Elgar Publishing.
    2. de Palma, André & Picard, Nathalie, 2005. "Route choice decision under travel time uncertainty," Transportation Research Part A: Policy and Practice, Elsevier, vol. 39(4), pages 295-324, May.
    3. André De Palma & Nathalie Picard, 2005. "Congestion on risky routes with risk adverse drivers," ERSA conference papers ersa05p423, European Regional Science Association.
    4. Anderson, Lisa R. & Mellor, Jennifer M., 2008. "Predicting health behaviors with an experimental measure of risk preference," Journal of Health Economics, Elsevier, vol. 27(5), pages 1260-1274, September.
    5. Allan M. Williams & Vladimír Baláž, 2014. "Mobility, risk tolerance and competence to manage risks," Journal of Risk Research, Taylor & Francis Journals, vol. 17(8), pages 1061-1088, September.
    6. repec:eee:ehbiol:v:26:y:2017:i:c:p:21-29 is not listed on IDEAS
    7. Eisenhauer, Joseph G., 2010. "Rank-ordering of risk preferences with conventional and discrete measures," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(3), pages 291-297, August.

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access

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