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How people know their risk preference

Ruben C. Arslan (), Martin Brümmer, Thomas Dohmen (), Johanna Drewelies, Ralph Hertwig and Gert Wagner ()
Additional contact information
Ruben C. Arslan: Center for Adaptive Rationality, Max Planck Institute for Human Development, Berlin, Germany
Martin Brümmer: University of Leipzig, Germany
Johanna Drewelies: Humboldt University of Berlin, Germany
Ralph Hertwig: Center for Adaptive Rationality, Max Planck Institute for Human Development, Berlin, Germany

No 31, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: People differ in their willingness to take risks. Recent work found that revealed preference tasks (e.g., laboratory lotteries)—a dominant class of measures—are outperformed by survey-based stated preferences, which are more stable and predict real-world risk taking across different domains. How can stated preferences, often criticised as inconsequential “cheap talk,” be more valid and predictive than controlled, incentivized lotteries? In our multimethod study, over 3,000 respondents from population samples answered a single widely used and predictive risk preference question. Respondents then explained the reasoning behind their answer. They tended to recount diagnostic behaviours and experiences, focusing on voluntary, consequential acts and experiences from which they seemed to infer their risk preference. We found that third-party readers of respondents’ brief memories and explanations reached similar inferences about respondents’ preferences, indicating the intersubjective validity of this information. Our results help unpack the self-perception behind stated risk preferences that permits people to draw upon their own understanding of what constitutes diagnostic behaviours and experiences, as revealed in high-stakes situations in the real world.

Keywords: risk preferences; self-report; self-perception (search for similar items in EconPapers)
JEL-codes: D80 D81 D91 D01 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2020-09
New Economics Papers: this item is included in nep-cbe and nep-exp
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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_031_2020.pdf First version, 2020 (application/pdf)

Related works:
Working Paper: How People Know Their Risk Preference (2020) Downloads
Working Paper: How People Know Their Risk Preference (2020) Downloads
Working Paper: How People Know their Risk Preference (2020) Downloads
Working Paper: How People Know Their Risk Preference (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:031

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