Detecting heterogeneous risk attitudes with mixed gambles

Luis Santos-Pinto (), Adrian Bruhin (), José Mata and Thomas Astebro

Theory and Decision, 2015, vol. 79, issue 4, 573-600

Abstract: We propose a task for eliciting attitudes toward risk that is close to real-world risky decisions which typically involve gains and losses. The task consists of accepting or rejecting gambles that provide a gain with probability $$p$$ p and a loss with probability $$1-p$$ 1 - p . We employ finite mixture models to uncover heterogeneity in risk preferences and find that (i) behavior is heterogeneous, with one half of the subjects behaving as expected utility maximizers, (ii) for the others, reference-dependent models perform better than those where subjects derive utility from final outcomes, (iii) models with sign-dependent decision weights perform better than those without, and (iv) there is no evidence for loss aversion. The procedure is sufficiently simple so that it can be easily used in field or lab experiments where risk elicitation is not the main experiment. Copyright Springer Science+Business Media New York 2015

Keywords: Individual risk-taking behavior; Latent heterogeneity; Finite mixture models; Reference-dependence; Loss aversion; C91; D81 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (10)

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Working Paper: Detecting Heterogeneous Risk Attitudes with Mixed Gambles (2014)
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DOI: 10.1007/s11238-015-9484-1

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