Estimating risk attitudes in conventional and artefactual lab experiments: The importance of the underlying assumptions

Andreas Drichoutis and Phoebe Koundouri ()

No 2012-19, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: In this paper the authors assess the importance of sample type in the estimation of risk preferences. The authors elicit and compare risk preferences from student subjects and subjects drawn from the general population, using the multiple price list method devised by Holt and Laury (Risk aversion and incentive effects, 2002). The authors find evidence suggesting that under Rank Dependent Utility and an expo-power function, students exhibit similar risk attitudes to subjects drawn from the general population. However, when the authors assume an incorrect characterization of risk preferences, in particular they adopt the framework of Expected Utility theory and a Constant Relative Risk Aversion function, their estimation results lead to erroneous inferences. In this case, students are on average risk averse, while subjects drawn from the general population exhibit risk loving preferences. The results have implications for economic policy making under uncertainty.

Keywords: Risk aversion; CRRA; expo-power; rank dependent utility; multiple price list (search for similar items in EconPapers)
JEL-codes: C91 D01 D81 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cbe and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Journal Article: Estimating risk attitudes in conventional and artefactual lab experiments: The importance of the underlying assumptions (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201219

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