Reflection for higher order risk preferences

Han (H.) Bleichrodt () and Paul van Bruggen
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Han (H.) Bleichrodt: Erasmus School of Economics, Australian National University

No 18-079/I, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Higher order risk preferences are important determinants of economic behaviour. We apply behavioural insights to this topic: we measure higher order risk preferences for pure gains and pure losses by controlling the reference point. We find a reflection effect not only for second order risk preferences, as in Kahneman and Tversky 1979, but also for higher order risk preferences: we find risk aversion, prudence and intemperance for gains, but risk loving preferences, imprudence and temperance for losses. The risk aversion and intemperance for gains and the imprudence for losses is evidence against a preference for combining good with bad or good with good, which previous theoretical and empirical results suggest may underlie higher order risk preferences.

Keywords: Risk Apportionment; Higher Order Risk Preferences; Risk Aversion; Prudence; Temperance; Reference Dependence (search for similar items in EconPapers)
JEL-codes: C91 D81 D91 (search for similar items in EconPapers)
Date: 2018-10-28
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20180079

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