IDEAS home Printed from https://ideas.repec.org/p/jrp/jrpwrp/2009-006.html
   My bibliography  Save this paper

Relating the two Dimensions of Risk Attitudes: An Experimental Analysis

Author

Listed:
  • Jianying Qiu

    () (Department of Economics, University of Innsbruck)

  • Eva-Maria Steiger

    () (Stratigic Interaction Group, Max Planck Institute of Economics, Jena, Germany)

Abstract

In the framework of expected utility theory, risk attitudes are entirely captured by the curvature of the utility function. In cumulative prospect theory (CPT) risk attitudes have an additional dimension: the weighting of probabilities. With this modification, one question arises naturally: since both utility and probability weighting determine the attitude towards risk, what is the relation between them? We ran a controlled laboratory experiment to answer this question. Our ï¬ ndings suggest that the two dimensions capture different characteristics of individual risk attitude. Though individuals who are risk averse in one dimension are likely to be risk averse in the other, the two dimensions show no signiï¬ cant correlation. Moreover, a signiï¬ cant proportion of subjects are risk averse in one dimension but risk seeking in the other.

Suggested Citation

  • Jianying Qiu & Eva-Maria Steiger, 2009. "Relating the two Dimensions of Risk Attitudes: An Experimental Analysis," Jena Economic Research Papers 2009-006, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2009-006
    as

    Download full text from publisher

    File URL: http://zs.thulb.uni-jena.de/receive/jportal_jparticle_00142423
    Download Restriction: no

    References listed on IDEAS

    as
    1. Niels Bosma & Mirjam van Praag & Roy Thurik & Gerrit de Wit, 2004. "The Value of Human and Social Capital Investments for the Business Performance of Startups," Small Business Economics, Springer, vol. 23(3), pages 227-236, October.
    2. Bronwyn Hall, 2004. "The financing of research and development," Chapters,in: Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2 Edward Elgar Publishing.
    3. Enrico Santarelli & Marco Vivarelli, 2007. "Entrepreneurship and the process of firms’ entry, survival and growth," Industrial and Corporate Change, Oxford University Press, vol. 16(3), pages 455-488, June.
    4. Yar, Daniel & Wennberg, Karl & Berglund, Henrik, 2008. "Creativity In Entrepreneurship Education," SSE/EFI Working Paper Series in Business Administration 2008:4, Stockholm School of Economics, revised 03 Apr 2008.
    5. Poh Kam Wong & Lena Lee & Maw Der Foo, 2008. "Occupational Choice: The Influence of Product vs. Process Innovation," Small Business Economics, Springer, vol. 30(3), pages 267-281, March.
    6. Magnus Henrekson & Dan Johansson, 2010. "Gazelles as job creators: a survey and interpretation of the evidence," Small Business Economics, Springer, vol. 35(2), pages 227-244, September.
    7. Henrekson, Magnus & Johansson, Dan, 2008. "Competencies and Institutions Fostering High-growth Firms," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 5(1), pages 1-80, November.
    8. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters,in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
    9. Baldwin, John R. & Gellatly, Guy, 1998. "Are There High-tech Industries or Only High-tech Firms? Evidence from New Technology-based Firms," Analytical Studies Branch Research Paper Series 1998120e, Statistics Canada, Analytical Studies Branch.
    10. Niosi, Jorge, 2003. "Alliances are not enough explaining rapid growth in biotechnology firms," Research Policy, Elsevier, vol. 32(5), pages 737-750, May.
    11. Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2001. "The relationship between size and growth: the case of Italian newborn firms," Applied Economics Letters, Taylor & Francis Journals, vol. 8(7), pages 451-454.
    12. Christian Rammer & Dirk Czarnitzki & Alfred Spielkamp, 2009. "Innovation success of non-R&D-performers: substituting technology by management in SMEs," Small Business Economics, Springer, vol. 33(1), pages 35-58, June.
    13. Roper, Stephen & Du, Jun & Love, James H., 2008. "Modelling the innovation value chain," Research Policy, Elsevier, vol. 37(6-7), pages 961-977, July.
    14. Harhoff, Dietmar & Stahl, Konrad & Woywode, Michael, 1998. "Legal Form, Growth and Exit of West German Firms--Empirical Results for Manufacturing, Construction, Trade and Service Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 453-488, December.
    15. Erik Stam & David Audretsch & Joris Meijaard, 2008. "Renascent entrepreneurship," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 493-507, August.
      • Stam, F.C. & Audretsch, D.B. & Meijaard, J., 2006. "Renascent Entrepreneurship," ERIM Report Series Research in Management ERS-2006-017-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    16. Alex Coad & Rekha Rao, 2006. "Innovation and firm growth in "complex technology" sectors : a quantile regression approach," Cahiers de la Maison des Sciences Economiques r06050, Université Panthéon-Sorbonne (Paris 1).
    17. Lokshin, Boris & Mohnen, Pierre, 2007. "Measuring the Effectiveness of R&D Tax Credits in the Netherlands," MERIT Working Papers 025, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    18. Karl Wennberg & Göran Lindqvist, 2010. "The effect of clusters on the survival and performance of new firms," Small Business Economics, Springer, vol. 34(3), pages 221-241, April.
    19. Garnsey, Elizabeth, 1998. "A Theory of the Early Growth of the Firm," Industrial and Corporate Change, Oxford University Press, vol. 7(3), pages 523-556, September.
    20. Marco Vivarelli, 2004. "Are All the Potential Entrepreneurs So Good?," Small Business Economics, Springer, vol. 23(1), pages 41-49, August.
    21. Hoetker, Glenn & Agarwal, Rajshree, 2005. "Death Hurts, But It Isn't Fatal: The Postexit Diffusion of Knowledge Created by Innovative Companies," Working Papers 05-0100, University of Illinois at Urbana-Champaign, College of Business.
    22. Colombo, Massimo G. & Grilli, Luca, 2005. "Founders' human capital and the growth of new technology-based firms: A competence-based view," Research Policy, Elsevier, vol. 34(6), pages 795-816, August.
    23. Simon Parker & David Storey & Arjen Witteloostuijn, 2010. "What happens to gazelles? The importance of dynamic management strategy," Small Business Economics, Springer, vol. 35(2), pages 203-226, September.
    24. David Smallbone & Robert Baldock & Steven Burgess, 2002. "Targeted support for high-growth start-ups: some policy issues," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 20(2), pages 195-209, April.
    25. Granstrand, Ove & Sjölander, Sören, 1990. "The Acquisition of Technology and Small Firms by Large Firms," Working Paper Series 213, Research Institute of Industrial Economics.
    26. Alessandra Canepa & Paul Stoneman, 2008. "Financial constraints to innovation in the UK: evidence from CIS2 and CIS3," Oxford Economic Papers, Oxford University Press, vol. 60(4), pages 711-730, October.
    27. Lyons, Bruce R, 1980. "A New Measure of Minimum Efficient Plant Size in UK Manufacturing Industry," Economica, London School of Economics and Political Science, vol. 47(185), pages 19-34, February.
    28. Michael Fritsch & Antje Weyh, 2006. "How Large are the Direct Employment Effects of New Businesses? An Empirical Investigation for West Germany," Small Business Economics, Springer, vol. 27(2), pages 245-260, October.
    29. Audretsch, David B. & Santarelli, Enrico & Vivarelli, Marco, 1999. "Start-up size and industrial dynamics: some evidence from Italian manufacturing," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 965-983, October.
    30. Jonathan Levie & Erkko Autio, 2008. "A theoretical grounding and test of the GEM model," Small Business Economics, Springer, vol. 31(3), pages 235-263, October.
    31. Cooper, Arnold C. & Gimeno-Gascon, F. Javier & Woo, Carolyn Y., 1994. "Initial human and financial capital as predictors of new venture performance," Journal of Business Venturing, Elsevier, vol. 9(5), pages 371-395, September.
    32. Granstrand, Ove & Sjolander, Soren, 1990. "The acquisition of technology and small firms by large firms," Journal of Economic Behavior & Organization, Elsevier, vol. 13(3), pages 367-386, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Risk attitudes; Cumulative prospect theory; Experimental study;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jrp:jrpwrp:2009-006. 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: (Markus Pasche). General contact details of provider: http://www.jenecon.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.