The Effect of an Additional Alternative on Measured Risk Preferences in a Field Experiment

Jim Engle-Warnick (), Javier A. Escobal and Sonia Laszlo ()

Abstract: We experimentally test for the effect of an additional alternative on the measured risk preferences of farmers in rural Peru. In our experiment, subjects revealed their risk preferences with a series of choices between two gambles. We added a third gamble, which was always dominated by one of the two existing gambles. We found that subjects chose this gamble nearly one quarter of the time, in some cases causing them to appear more risk loving. We conclude that the number of available alternatives should be taken into account for predicting decisions under uncertainty.

Keywords: risk preferences; risk measurement instruments; experimental economics; field experiments (search for similar items in EconPapers)
JEL-codes: C91 C93 O33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp
Date: 2005-11-15
Note: Type of Document - pdf; pages: 30
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