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Risk attitudes of children and adults: Choices over small and large probability gains and losses

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  • William Harbaugh
  • Kate Krause
  • Lise Vesterlund

Abstract

In this paper we examine how risk attitudes change with age. We present participants from age 5 to 65 with choices between simple gambles and the expected value of the gambles. The gambles are over both gains and losses, and vary in the probability of the non-zero payoff. Surprisingly, we find that many participants are risk seeking when faced with high-probability prospects over gains and risk averse when faced with small-probability prospects. Over losses we find the exact opposite. Children's choices are consistent with the underweighting of low-probability events and the overweighting of high-probability ones. This tendency diminishes with age, and on average adults appear to use the objective probability when evaluating risky prospects.

Suggested Citation

  • William Harbaugh & Kate Krause & Lise Vesterlund, 2002. "Risk attitudes of children and adults: Choices over small and large probability gains and losses," Artefactual Field Experiments 00055, The Field Experiments Website.
  • Handle: RePEc:feb:artefa:00055
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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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