On skewed risks in economic models and experiments

Sebastian Ebert

Journal of Economic Behavior & Organization, 2015, vol. 112, issue C, 85-97

Abstract: Many of the most significant risks that people face in their lives are left-skewed, i.e., imply large losses with only small probability. I characterize skewness in binary risks, which are widely applied in both economic models and experiments. Moreover, I provide an explicit re-parametrization of binary risks in terms of their first three moments. These results allow for the conducting of comparative statics analysis with regard to skewness, and provide a useful tool for the calibration of lotteries in experiments. I apply them to show that left-skewed background risks give rise to a very strong precautionary saving motive, and to collect additional laboratory evidence on skewness preference and risk-seeking behavior.

Keywords: Catastrophic risks; Lottery experiments; Precautionary saving; Risk aversion; Skewness; Skewness preference (search for similar items in EconPapers)
JEL-codes: C81 C90 D81 G1 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (62)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:112:y:2015:i:c:p:85-97

DOI: 10.1016/j.jebo.2015.01.003

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