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Heterogeneity in Risky Choice Behaviour in a Broad Population

  • Gaudecker, Hans-Martin von

    ()

    (University of Bonn)

  • van Soest, Arthur

    ()

    (Tilburg University)

  • Wengström, Erik

    ()

    (University of Copenhagen)

We analyse risk preferences using an experiment with real incentives in a representative sample of 1,422 Dutch respondents. Our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics: Utility curvature, loss aversion, preferences towards the timing of uncertainty resolution, and the propensity to choose randomly rather than on the basis of preferences. We find that all four parameters contribute to explaining choice behaviour. The structural parameters are significantly associated with socio-economic variables, but it is essential to incorporate unobserved heterogeneity in each of them to match the rich variety of choice patterns in the data.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4022.

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Length: 39 pages
Date of creation: Feb 2009
Date of revision:
Publication status: published in: American Economic Review, 2011, 101 (2), 664-694
Handle: RePEc:iza:izadps:dp4022
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