The Reflection Effect for Higher-Order Risk Preferences

Han Bleichrodt and Paul van Bruggen

The Review of Economics and Statistics, 2022, vol. 104, issue 4, 705-717

Abstract: Higher-order risk preferences are important determinants of economic behavior. We apply insights from behavioral economics: we measure higher-order risk preferences for pure gains and losses. We find a reflection effect not only for second-order risk preferences, as did Kahneman and Tversky (1979), but also for higher-order risk preferences: we find risk aversion, prudence and intemperance for gains and much more risk-loving preferences, imprudence and temperance for losses. These findings are at odds with a universal preference for combining good with bad or good with good, which previous results suggest may underlie higher-order risk preferences.

Date: 2022
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