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The Effect of an Additional Alternative on Measured Risk Preferences in a Field Experiment

  • Jim Engle-Warnick

    (McGill University)

  • Javier Escobal

    (GRADE)

  • Sonia Laszlo

    (McGill University)

We experimentally test for the effect of an additional alternative on the measured risk preferences of farmers in rural Peru. In our experiment, subjects revealed their risk preferences with a series of choices between two gambles. We added a third gamble, which was always dominated by one of the two existing gambles. We found that subjects chose this gamble nearly one quarter of the time, in some cases causing them to appear more risk loving. We conclude that the number of available alternatives should be taken into account for predicting decisions under uncertainty.

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File URL: http://128.118.178.162/eps/exp/papers/0511/0511003.pdf
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Paper provided by EconWPA in its series Experimental with number 0511003.

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Length: 30 pages
Date of creation: 15 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpex:0511003
Note: Type of Document - pdf; pages: 30
Contact details of provider: Web page: http://128.118.178.162

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  1. Feder, Gershon, 1980. "Farm Size, Risk Aversion and the Adoption of New Technology under Uncertainty," Oxford Economic Papers, Oxford University Press, vol. 32(2), pages 263-83, July.
  2. Abigail Barr, 2003. "Risk Pooling, Commitment, and Information: An experimental test of two fundamental assumptions," Economics Series Working Papers WPS/2003-05, University of Oxford, Department of Economics.
  3. Marianne Bertrand & Dean S. Karlan & Sendhil Mullainathan & Eldar Shafir & Jonathan Zinman, 2005. "What's Psychology Worth? A Field Experiment in the Consumer Credit Market," Working Papers 918, Economic Growth Center, Yale University.
  4. Mette Wik & Tewodros Aragie Kebede & Olvar Bergland & Stein Holden, 2004. "On the measurement of risk aversion from experimental data," Applied Economics, Taylor & Francis Journals, vol. 36(21), pages 2443-2451.
  5. Antle, John M & Crissman, Charles C, 1990. "Risk, Efficiency, and the Adoption of Modern Crop Varieties: Evidence from the Philippines," Economic Development and Cultural Change, University of Chicago Press, vol. 38(3), pages 517-37, April.
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