Asset Integration, Risk Taking and Loss Aversion in the Laboratory

William G. Morrison () and Robert Oxoby
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William G. Morrison: Wilfrid Laurier University

No 12268, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We report on a laboratory experiment testing for the presence of loss aversion, as separate from risk aversion, utilizing an asset integration protocol designed to ensure that a loss of cash provided by the experimenter is viewed as a real loss by experimental participants. Our experimental design augments the Holt-Laury risk preference elicitation methodology to assess how individuals choose between a safe option and a riskier lottery. When the money at stake is viewed as the individual's own money, one of the lottery outcomes is in the domain of losses. Our results confirm that individuals display an additional reluctance to participate in a mixed domain lottery beyond that predicted by risk aversion. We show that only preference functions incorporating loss aversion are able to generate predicted behaviour that matches our results.

Keywords: experiments; risk taking (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2019-03
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-ore, nep-rmg and nep-upt
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Published - published in: Canadian Journal of Economics, 2022, 55 (3), 1460 - 1479

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Working Paper: Asset Integration, Risk Taking and Loss Aversion in the Laboratory (2019)
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