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

Author

Listed:
  • William T. Harbaugh

    (University of Oregon Economics Department)

  • Kate Krause

    (University of New Mexico Economics Department)

  • Lise Vesterlund

    (University of Pittsburgh Economics Department)

Abstract

In this paper we examine how risk attitudes change with age. We present participants from age 5 to 64 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 T. Harbaugh & Kate Krause & Lise Vesterlund, 1999. "Risk attitudes of children and adults: choices over small and large probability gains and losses," University of Oregon Economics Department Working Papers 1999-2, University of Oregon Economics Department.
    • Handle: RePEc:ore:uoecwp:1999-2
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    File URL: http://economics.uoregon.edu/papers/UO-1999-2_Harbaugh_Risk_Children.pdf
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    References listed on IDEAS

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    JEL classification:

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

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