Varieties of risk elicitation

Daniel Friedman, Sameh Habib, Duncan James and Sean Crockett

Discussion Papers, Research Professorship Market Design: Theory and Pragmatics from WZB Berlin Social Science Center

Abstract: We explore a variety of risk preference elicitation procedures that involve direct choice from a set of lotteries, including budget lines (BL) and binary choice lists (HL). We find statistically significant violations of the expected utility hypothesis (EUH) consistent with disappointment aversion, and also find violations of first order stochastic dominance, but both sorts of violations are mostly small and only slightly impair the predictive power of a parametric implementation of EUH. The estimated coefficient of relative risk aversion, gamma, varies widely across individual subjects (consistent with EUH) and also across elicitation tasks (inconsistent with direct implementation of EUH). An alternative nonparametric measure of risk preferences displays similar patterns. The two risk preference measures are highly correlated with each other for each elicitation task. Each separate measure varies widely across individual subjects and across elicitation tasks, with low to nil correlation between BL tasks and HL tasks. Some of the variation across tasks can be explained by attributes such as graphical vs text representation that have no role in decision theory.

Keywords: risk aversion; experiment; elicitation; multiple price list (search for similar items in EconPapers)
JEL-codes: C91 D81 D89 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wzbmdn:spii2018501

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