Articles

Detecting heterogeneous risk attitudes with mixed gambles

L. SANTOS-PINTO, A. BRUHIN, J. MATA, T. ASTEBRO

Theory and Decision

décembre 2015, vol. 79, n°4, pp.573-600

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Mots clés : Individual risk taking behavior, Latent heterogeneity, Finite mixture models, Reference-dependence, Loss aversion

http://ssrn.com/abstract=2125956


We propose a task for eliciting attitudes towards risk that is close to real world risky decisions which typically involve gains and losses. The task consists of accepting or rejecting gambles that provide a gain with probability p and a loss with probability 1 - p. We employ finite mixture models to uncover heterogeneity in risk preferences and find that (i) behavior is heterogeneous, with slightly less than one half of the subjects behaving as expected utility maximizers, (ii) for the others, reference-dependent models perform better than those where subjects derive utility from final outcomes, (iii) models with sign dependent decision weights perform better than those without, and (iv) there is no evidence for loss aversion. The procedure is sufficiently simple so that it can be easily used in field or lab experiments where risk elicitation is not the main experiment


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