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Reconsidering Risk Aversion

Author

Listed:
  • Daniel J. Benjamin

    (University of California Los Angeles & NBER)

  • Mark Alan Fontana

    (Hospital for Special Surgery & Weill Cornell Medical College)

  • Miles Kimball

    (University of Colorado Boulder & NBER)

Abstract

Risk aversion is typically inferred from real or hypothetical choices over risky lotteries, but such “untutored” choices may reflect mistakes rather than preferences. We develop a procedure to disentangle preferences from mistakes : after eliciting untutored choices, we confront participants with their choices that are inconsistent with expected-utility axioms (broken down enough to be self-evident) and allow them to reconsider their choices. We demonstrate this procedure via a survey about hypothetical retirement investment choices administered to 596 Cornell students. We find that, on average, reconsidered choices are more consistent with almost all expected-utility axioms, with one exception related to regret.

Suggested Citation

  • Daniel J. Benjamin & Mark Alan Fontana & Miles Kimball, 2020. "Reconsidering Risk Aversion," GRU Working Paper Series GRU_2020_026, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    • Handle: RePEc:cth:wpaper:gru_2020_026
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    File URL: https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232020-026%20Benjamin.pdf
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    References listed on IDEAS

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    Cited by:

    1. Drichoutis, Andreas C. & Palma, Marco & Feldman, Paul, 2024. "Incentives and Payment Mechanisms in Preference Elicitation," MPRA Paper 120898, University Library of Munich, Germany.
    2. Zachary Breig & Paul Feldman, 2024. "Revealing risky mistakes through revisions," Journal of Risk and Uncertainty, Springer, vol. 68(3), pages 227-254, June.

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    More about this item

    Keywords

    risk aversion; mistakes; retirement investing; framing effects; expected utility;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H8 - Public Economics - - Miscellaneous Issues

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