Assessing the Construct Validity of Risk Attitude

Joost Pennings () and Ale Smidts ()
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Ale Smidts: Rotterdam School of Management, Erasmus University Rotterdam, The Netherlands

Management Science, 2000, vol. 46, issue 10, 1337-1348

Abstract: Two major approaches to measuring risk attitude are compared. One, based on the expected utility model is derived from responses to lotteries and direct scaling. The other measure is a psychometric approach based on Likert statements that produces a unidimensional risk attitude scale. The data are from computer-assisted interviews of 346 Dutch owner-managers of hog farms, who made decisions about their own businesses. While the measures demonstrate some degree of convergent validity, those measures based on lotteries were better predictors of actual market behavior. In contrast the psychometric scale showed more agreement to selfreported measures of innovativeness, market orientation, and the intention to reduce risk. In light of the higher predictive validity of lottery-based measurements, werecommend elicitation methods based on the expected utility paradigm.

Keywords: managerial decision making under risk; risk attitude; utility theory; psychometric scaling; nomological validity; price risk (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (82)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:46:y:2000:i:10:p:1337-1348

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