Impact of Presentation Format and Self-Reported Risk Aversion on Revealed Skewness Preferences

Dennis Vrecko (), Alexander Klos () and Thomas Langer ()
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Dennis Vrecko: Finance Center Münster, DIA Research Group for Retirement Savings, University of Münster, 48143 Münster, Germany
Alexander Klos: Finance Center Münster, DIA Research Group for Retirement Savings, University of Münster, 48143 Münster, Germany
Thomas Langer: Finance Center Münster, DIA Research Group for Retirement Savings, University of Münster, 48143 Münster, Germany

Decision Analysis, 2009, vol. 6, issue 2, 57-74

Abstract: This paper reports the results of an experiment on the revealed preference for skewness in a comparison of continuous return distributions. We find that revealed preferences are highly sensitive to the way asset risks are communicated. Whereas probability density functions lead to a pronounced preference for left-skewed distributions, the opposite is true for cumulative distribution functions. Systematic misperceptions of the variance cannot explain the sensitivity of preferences to the presentation format. Part of the preference for positive skewness when risks are communicated through probability density functions is due to a systematic misestimation of the expected return. We also find that self-reported risk aversion, a measure of risk attitude commonly used in practice, is a valuable predictor of skewness preferences. Individuals that judge themselves as more risk averse show a stronger preference for right skewness.

Keywords: decision analysis; skewness preferences; presentation formats; self-reported risk aversion (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ordeca:v:6:y:2009:i:2:p:57-74

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