What can multiple price lists really tell us about risk preferences?
Andreas Drichoutis () and
Jayson Lusk ()
Journal of Risk and Uncertainty, 2016, vol. 53, issue 2, 89-106
Abstract Multiple price lists have emerged as a simple and popular method for eliciting risk preferences. Despite their popularity, a key downside of multiple price lists has not been widely recognized — namely that the approach is unlikely to generate sufficient information to accurately identify different dimensions of risk preferences. The most popular theories of decision making under risk posit that preferences for risk are driven by a combination of two factors: the curvature of the utility function and the extent to which probabilities are weighted non-linearly. In this paper, we show that the widely used multiple price list introduced by Holt and Laury (The American Economic Review 92(5) 1644–1655 2002) is likely more accurate at eliciting the shape of the probability weighting function, and we construct a different multiple price list that is likely more accurate at eliciting the shape of the utility function. We show that by combining information from different multiple price lists, greater predictive performance can be achieved.
Keywords: Expected utility theory; Multiple price list; Probability weighting; Rank dependent utility; Elicitation methods; C91; D81 (search for similar items in EconPapers)
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