Discussion Paper

No. 2012-19 | March 28, 2012
Estimating Risk Attitudes in Conventional and Artefactual Lab Experiments: The Importance of the Underlying Assumptions

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.

Data Set

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The data set for this article can be found at: http://hdl.handle.net/1902.1/17911

JEL Classification

C91 D81 D01

Cite As

Andreas C. Drichoutis and Phoebe Koundouri (2012). Estimating Risk Attitudes in Conventional and Artefactual Lab Experiments: The Importance of the Underlying Assumptions. Economics Discussion Papers, No 2012-19, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2012-19

Assessment



Comments and Questions


Anonymous - Referee Report 1
June 13, 2012 - 09:25

See attached file


Andreas C. Drichoutis and Phoebe Koundouri - Reply to Referee Report 1
July 03, 2012 - 09:11

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Andreas C. Drichoutis and Phoebe Koundouri - New version of the paper
July 03, 2012 - 09:12

See attached file


Anonymous - Referee Report 2
July 04, 2012 - 08:57

See attached file


Andreas C. Drichoutis and Phoebe Koundouri - Reply to Referee Report 2
September 05, 2012 - 11:04

See attached file


Andreas C. Drichoutis and Phoebe Koundouri - New version of the paper
September 05, 2012 - 11:08

See attached file