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Reconsidering Risk Aversion

Daniel Benjamin, Mark Alan Fontana and Miles Kimball
Additional contact information
Mark Alan Fontana: Hospital for Special Surgery & Weill Cornell Medical College

No GRU_2020_026, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: Risk aversion is typically inferred from real or hypothetical choices over risky lotteries, but such “untutored” choices may reflect mistakes rather than preferences. We develop a procedure to disentangle preferences from mistakes : after eliciting untutored choices, we confront participants with their choices that are inconsistent with expected-utility axioms (broken down enough to be self-evident) and allow them to reconsider their choices. We demonstrate this procedure via a survey about hypothetical retirement investment choices administered to 596 Cornell students. We find that, on average, reconsidered choices are more consistent with almost all expected-utility axioms, with one exception related to regret.

Keywords: risk aversion; mistakes; retirement investing; framing effects; expected utility (search for similar items in EconPapers)
JEL-codes: D63 D81 G11 H8 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2020-10-21
New Economics Papers: this item is included in nep-cbe, nep-cwa, nep-hea and nep-upt
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