Understanding Risk Attitudes in two Dimensions: An Experimental Analysis
Despite extensive studies, the nature of risk attitudes remains a vigorously discussed question in economics and psychology. In expected utility theory, attitudes towards risk originate from changes in marginal utility. Cumulative prospect theory (CPT) adds an additional dimension: the weighting of probabilities. By examining both dimensions, we strive to gain more insight on the relation between the curvature of utility function and probability weighting, and on possible relations to cognitive limitations. Our findings from a controlled laboratory experiment suggest that the two dimensions capture quite different characteristics. Though, most individuals exhibit concave utility and convex probability weighting, the two dimensions show no significant correlation. In addition, only probability weighting, not the curvature of utility function, is correlated with educational background and decision time, which suggests its relation to cognitive limitations.
|Date of creation:||May 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.uibk.ac.at/fakultaeten/volkswirtschaft_und_statistik/index.html.en
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:inn:wpaper:2009-11. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Janette Walde)
If references are entirely missing, you can add them using this form.