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Measuring Risk Aversion Model-Independently

Author

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  • Maier, Johannes
  • Rüger, Maximilian

Abstract

We propose a new method to elicit individuals' risk preferences. Similar to Holt and Laury (2002), we use a simple multiple price-list format. However, our method is based on a general notion of increasing risk, which allows classifying individuals as more or less risk-averse without assuming a specic utility framework. In a laboratory experiment we compare both methods. Each classies individuals almost identically as risk-averse, -neutral, or -seeking. However, classications of individuals as more or less risk-averse dier substantially. Moreover, our approach yields higher measures of risk aversion, and only with our method these measures are robust toward increasing stakes.

Suggested Citation

  • Maier, Johannes & Rüger, Maximilian, 2010. "Measuring Risk Aversion Model-Independently," Discussion Papers in Economics 11873, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenec:11873
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    References listed on IDEAS

    as
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    Cited by:

    1. Booth, Alison & Cardona-Sosa, Lina & Nolen, Patrick, 2014. "Gender differences in risk aversion: Do single-sex environments affect their development?," Journal of Economic Behavior & Organization, Elsevier, pages 126-154.
    2. Brocas, Isabelle & Carrillo, Juan D & Giga, Aleksandar & Zapatero, Fernando, 2015. "Risk Aversion in a Dynamic Asset Allocation Experiment," CEPR Discussion Papers 10332, C.E.P.R. Discussion Papers.
    3. J. Francois Outreville, 2014. "Risk Aversion, Risk Behavior, and Demand for Insurance: A Survey," Journal of Insurance Issues, Western Risk and Insurance Association, pages 158-186.

    More about this item

    Keywords

    Risk Aversion; Multiple Price-List; Elicitation; Laboratory Experiment; Holt and Laury Method; Mean Preserving Spreads; Non-EUT; Increasing Risk;

    JEL classification:

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

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