Discussion Paper

Published as Journal Article »

No. 2012-19 | March 28, 2012

Andreas C. Drichoutis and Phoebe Koundouri

Estimating Risk Attitudes in Conventional and Artefactual Lab Experiments: The Importance of the Underlying Assumptions

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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.

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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

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