Risk Attitude in Real Decision Problems

Fabrizio Botti, Anna Conte, Daniela Teresa Di Cagno and Carlo D'Ippoliti
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Fabrizio Botti: LUISS Guido Carli Rome
Anna Conte: University of Rome I "La Sapienza", University of Rome II "Tor Vergata" and LUISS Guido Carli Rome
Daniela Teresa Di Cagno: LUISS Guido Carli Rome
Carlo D'Ippoliti: University of Rome I "La Sapienza" and LUISS Guido Carli Rome

The B.E. Journal of Economic Analysis & Policy, 2008, vol. 8, issue 1

Abstract: We use data from 298 showings of the television program "Affari Tuoi," which involves contestants making decisions between risky prospects with possible prizes of up to half a million euros, to estimate three models of decision-making under risk: Expected Utility, Rank-Dependent Expected Utility and Regret-Rejoice. We find that Regret-Rejoice does not significantly improve upon Expected Utility, while Rank-Dependent outperforms it. Interestingly, we find that the CARA specification fits significantly better than the conventionally-adopted CRRA specification. Crucially, we find a significant role for unobserved heterogeneity, implying that our estimates provide more superior estimates of risk attitude and of probability weighting than other studies.

Keywords: field experiments; risk attitude; unobserved heterogeneity (search for similar items in EconPapers)
JEL-codes: C15 C23 C25 D81 (search for similar items in EconPapers)
Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:bpj:bejeap:v:8:y:2008:i:1:n:6

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