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An Experimental Study of Risk Aversion in Decision-making Under Uncertainty

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  • Horace Ho

Abstract

This paper presents the findings of an experimental study of risk aversion in decision making under uncertainty. When presented with a series of gambles, subjects determined the certainty-equivalent wealth of each gamble. Risk aversion was measured by the Markowitz risk premium of the decision. The fixed effects regression model indicates the significant influence of the first three moments of a probability distribution in determining the risk premium. These results lend support to the rules of mean-variance and third-degree stochastic dominance. The extent of influence is also affected by the individual’s age, but not by gender, wealth or schooling. Copyright International Atlantic Economic Society 2009

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  • Horace Ho, 2009. "An Experimental Study of Risk Aversion in Decision-making Under Uncertainty," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 15(4), pages 369-377, November.
    • Handle: RePEc:kap:iaecre:v:15:y:2009:i:4:p:369-377:10.1007/s11294-009-9227-6
    DOI: 10.1007/s11294-009-9227-6
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    References listed on IDEAS

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    Cited by:

    1. Steffensen, Mogens, 2011. "Optimal consumption and investment under time-varying relative risk aversion," Journal of Economic Dynamics and Control, Elsevier, vol. 35(5), pages 659-667, May.
    2. Andreas Lichtenstern & Pavel V. Shevchenko & Rudi Zagst, 2019. "Optimal life-cycle consumption and investment decisions under age-dependent risk preferences," Papers 1908.09976, arXiv.org.

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    More about this item

    Keywords

    Experimental study; Risk aversion; Stochastic dominance; Mean-variance; Fixed effects; D80;
    All these keywords.

    JEL classification:

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

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