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Detecting Heterogeneous Risk Attitudes with Mixed Gambles

Thomas Astebro and Luis Santos-Pinto (luispedro.santospinto@unil.ch)

No 1042, HEC Research Papers Series from HEC Paris

Abstract: The authors propose a task for eliciting attitudes towards risk that is close to real world risky decisions which typically involve gains and losses. The task consists of accepting or rejecting gambles that provide a gain with probability p and a loss with probability 1 p. The authors employ finite mixture models to uncover heterogeneity in risk preferences and find that (i) behavior is heterogeneous, with slightly less than one half of the subjects behaving as expected utility maximizers, (ii) for the others, reference-dependent models perform better than those where subjects derive utility from final outcomes, (iii) models with sign dependent decision weights perform better than those without, and (iv) there is no evidence for loss aversion. The procedure is sufficiently simple so that it can be easily used in field or lab experiments where risk elicitation is not the main experiment.

Keywords: Individual risk taking behavior; latent heterogeneity; finite mixture models; reference-dependence; loss aversion (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014-03-28
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
References: Add references at CitEc
Citations: View citations in EconPapers (2)

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http://ssrn.com/abstract=2125956 (application/pdf)

Related works:
Journal Article: Detecting heterogeneous risk attitudes with mixed gambles (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1042

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