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Estimating Risk Attitudes in Denmark

  • E. Elisabet Rutstrom
  • Glenn W. Harrison
  • Morten I. Lau

We estimate individual risk attitudes using controlled experiments in the field in Denmark. These risk preferences are elicited by means of field experiments involving real monetary rewards. The experiments were carried out across Denmark using a representative sample of 253 people between 19 and 75 years of age. Risk attitudes are estimated for various individuals differentiated by socio-demographic characteristics such as income and age. Our results indicate that the average Dane is risk averse, and that risk neutrality is an inappropriate assumption to apply. We also find that risk attitudes do vary significantly with respect to several important socio-demographic variables. These conclusions are robust to the use of relatively flexible specifications of risk preferences. When individual characteristics of the sample are ignored, relative risk aversion appears not to be constant over the domain of income considered here, and rises rapidly as income increases above "small" amounts. However, relative risk aversion appears to be constant when one corrects for individual heterogeneity, although there is considerable uncertainty in the characterization of risk attitudes for low stakes

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Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 201.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:ausm04:201
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