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Certainty Preference, Random Choice, and Loss Aversion: A Comment on "Violence and Risk Preference: Experimental Evidence from Afghanistan"

Author

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  • Ferdinand Vieider

    (Department of Economics, University of Reading)

Abstract

I revisit recent evidence uncovering a preference for certainty in violation of dominant normative and descriptive theories of decision making under risk. I explore two alternative explanations of the preference patterns found: i) systematic noise; and ii) reference dependence activated by salient outcomes. I develop choice lists that allow to disentangle these different explanations, and test them on rural subjects in southern India. The results reject explanations based on a preference for certainty in favor of explanations based on random choice. The estimates are further distorted by response mode effects, with loss aversion leading to an over-estimation of risk aversion.

Suggested Citation

  • Ferdinand Vieider, 2016. "Certainty Preference, Random Choice, and Loss Aversion: A Comment on "Violence and Risk Preference: Experimental Evidence from Afghanistan"," Economics Discussion Papers em-dp2016-06, Department of Economics, University of Reading.
  • Handle: RePEc:rdg:emxxdp:em-dp2016-06
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    File URL: http://www.reading.ac.uk/web/FILES/economics/emdp2016123.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    risk preferences; certainty effect; random choice; loss aversion;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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