Do bettors prefer long shots because they are risk-lovers,or are they just overconfident?

This study examines whether bettors' risk preferences or overconfidence in choosing winners better explains their well documented preference for low-probability wagers. Although previous studies using racetrack data often suggest that risk-loving behavior explains long-shot preference, such data cannot distinguish between the alternative explanations. We use football betting data to make the comparison and find that overconfidence more closely fits the data. This result complements evidence of overconfidence from behavioral studies as well as stock-market models of overconfident noise traders.     

Common genetic effects on risk-taking preferences and choices

Although prior research has shown that risk-taking preferences and choices are correlated across many domains, there is a dearth of research investigating whether these correlations are primarily the result of genetic or environmental factors. We examine the extent to which common genetic factors account for the association between general risk-taking preferences and domain-specific risk-taking preferences, and between general risk-taking preferences and risk taking choices in financial investments, stock market participation and business formation. Using data from 1898 monozygotic (MZ) and 1344 same-sex dizygotic (DZ) twins, we find that general risk-taking shares a common genetic component with domain-specific risk-taking preferences and risk-taking choices.

     

Does nurture matter: Theory and experimental investigation on the effect of working environment on risk and time preferences

Building upon the reference dependent preferences model, we develop a theoretical framework to examine the relationship between environment and preferences. To verify the model’s prediction, we use a combined artefactual field experiment and household survey data in Vietnam to investigate whether involvement is risky and has long-run targeted benefits, thereby causing fishermen to exhibit different risk and time preferences than workers in other occupations. Using a structural model approach, we integrate prospect theory and hyperbolic time discounting into a single framework, to simultaneously estimate and correlate the parameters of both risk and time preferences with other demographic variables. The key finding that fishermen are found to be less risk-averse and more patient than others asserts the theoretical prediction about the influence of the working environment on preferences.     

Just Who Are You Calling Risk Averse?

This paper estimates individual risk preferences based upon data that are generated by the same individuals acting in different institutions. The results show that the (estimated) numerical values of individuals' implied risk parameters are not stable within individuals across institutions. Furthermore, the ranking across subjects of the numerical values of individuals' implied risk parameters is not preserved across institutions.     

How would you like your gain in life expectancy to be provided? An experimental approach

This paper reports the results of an empirical study investigating people’s preferences over three different types of perturbation to their survival function, each perturbation generating the same gain in life expectancy. Preferences over the three different perturbations were found to be distributed more or less evenly across the subject pool. Use of a novel experimental methodology generated economically consistent and intuitively plausible responses to (necessarily) hypothetical questions concerning improvements in life expectancy by first allowing respondents to gain experience while making similar choices in an incentivized setting involving financial risk. The results demonstrate the potential for economic experiments to contribute to the development of more robust methods for policy evaluation in domains where physical risk is an important factor.     

Are risk preferences stable? Comparing an experimental measure with a validated survey-based measure

We examine the stability of risk preference within subjects by comparing measures obtained from two elicitation methods, an economics experiment with real monetary rewards and a survey with questions on hypothetical gambles. The survey questions have been validated by numerous empirical studies of investment, insurance demand, smoking and alcohol use, and recent studies have shown the experimental measure is associated with several real-world risky behaviors. For the majority of subjects, we find that risk preferences are not stable across elicitation methods. In interval regression models subjects’ risk preference classifications from survey questions on job-based gambles are not associated with risk preference estimates from the experiment. However, we find that risk classifications from inheritance-based gambles are significantly associated with the experimental measure. We identify some subjects for whom risk preference estimates are more strongly correlated across elicitation methods, suggesting that unobserved subject traits like comprehension or effort influence risk preference stability.     

Joint measurement of risk aversion,prudence, and temperance

Risk aversion—but also the higher-order risk preferences of prudence and temperance—are fundamental concepts in the study of economic decision making. We propose a method to jointly measure the intensity of risk aversion, prudence, and temperance. Our theoretical approach is to define risk compensations of different orders, and in an experiment we elicit these compensations with a price list technique. We find evidence for risk aversion, prudence, and temperance. These traits correlate within subjects. The compensations elicited for prudence are significantly larger than those for risk aversion and temperance. In contrast to commonly used utility functions, prospect theory can predict this behavioral pattern. In our experiment, risk-averse, risk-loving, and risk-neutral subjects are prudent. This supports a recent theoretical observation that prudence may be a more universal trait than previously realized.     

The Patient Protection and Affordable Care Act Meets the ‘Persistently Uninsured’

Under the Patient Protection and Affordable Care Act (commonly known as ‘Obamacare’), the national uninsured rate has fallen from 17.3 per cent in 2013 to 11.7 per cent in the first half of 2015. While this is a substantial drop, even accounting for the states that did not expand Medicaid, the remaining double‐digit national rate, as well as higher rates in some states, indicates that a significant minority of Americans are not buying insurance. Researchers have identified a segment of the population with weak or uncertain preferences for health insurance. This article explores how such individuals are unevenly distributed across states and whether cultural preferences relating to time preference and risk aversion underlie the geographic distribution of the ‘persistently uninsured’. It concludes by reviewing the policy implications presented by the presence of numerous health insurance sceptics in certain jurisdictions.     

Time preferences and risk aversion: Tests on domain differences

Understanding how individuals discount and evaluate the risks of environmental outcomes is a prime component in designing effective environmental policy. We use an incentivized experimental design to investigate whether subjects’ time preferences and risk aversion across the monetary and environmental domains differ. We find that subjects’ time preferences are not significantly different across the two domains. In contrast, subjects exhibit a higher degree of risk aversion in the environmental domain. Furthermore, we corroborate earlier results, documenting that women are more risk averse than men in the monetary domain, and show this finding to also hold in the environmental domain.     

An expected utility maximizer walks into a bar...

We conducted field experiments at a bar to test whether blood alcohol concentration (BAC) correlates with violations of the generalized axiom of revealed preference (GARP) and the independence axiom. We found that individuals with BACs well above the legal limit for driving adhere to GARP and independence at rates similar to those who are sober. This finding led to the fielding of a third experiment to explore how risk preferences might vary as a function of BAC. We found gender-specific effects: Men did not exhibit variations in risk preferences across BACs. In contrast, women were more risk averse than men at low BACs but exhibited increasing tolerance towards risks as BAC increased. Based on our estimates, men and women’s risk preferences are predicted to be identical at BACs nearly twice the legal limit for driving. We discuss the implications for policy-makers.     

Need and support: determinants of intra‐familial financial transfers in Sweden

Lennartsson C. Need and support: determinants of intra‐familial financial transfers in Sweden Int J Soc Welfare 2011: 20: 66–74 © 2010 The Author(s), Journal compilation © 2010 Blackwell Publishing Ltd and International Journal of Social Welfare. This study examined downward inter‐generational intra‐family financial transfers in Sweden made in the form of money transactions or gifts. The research questions focus on whether recipients of intra‐family financial transfers are children in ‘need’ of such support, and whether early family environment has any consequences for later financial transfers. Using data from a nationally representative survey, the results suggest that childhood disadvantages have long‐term consequences in connection with intra‐family financial transfers. Disadvantages and inequalities in childhood are likely to remain into adulthood, and children who experience adverse childhood conditions are less often recipients of later intra‐family financial support. Intra‐family transfers are also related to the ‘needs’ of the younger generation. Single parents and students from higher social class families are more often beneficiaries of financial support. In contrast, family support was no higher for unemployed children, for children lacking financial security in the form of a cash margin or for children reporting poor health.     

The Effects of Beliefs Versus Risk Attitude on Bargaining Outcomes

In bargaining environments with uncertain disagreement or “impasse” outcomes (e.g., litigation or labor strike outcomes), there is an identification problem that confounds data interpretation. Specifically, the minimally acceptable settlement value from a risk-averse (risk-loving) but unbiased-belief bargainer is empirically indistinguishable from what one could get with risk-neutrality and pessimistically (optimistically) biased beliefs. This article reports results from a controlled bargaining experiment where data on both risk attitude and beliefs under uncertainty are generated in order to assess their relative importance in bargaining experiment outcomes. The average lab subject is risk-averse, yet optimistic with respect to uncertainty, which is consistent with existing studies that examine each in isolation. I also find that the effects of optimism dominate those of risk-aversion. Optimistic bargainers are significantly more likely to dispute and have aggressive final bargaining positions. Dispute rates are not statistically affected by risk attitude, but there is some evidence that risk aversion leads to a weakened bargaining position. Though additional research is needed to understand the limits of extending these results, a key implication follows. In uncertainty environments where optimism dominates, increased settlement rates are more likely achieved by minimizing impasse uncertainty (to limit the potential for optimism) rather than maximizing uncertainty (to weaken the reservation point of risk-averse bargainers), as has been argued in the dispute resolution literature.      

Class politics in the sandbox? An analysis of the socio‐economic determinants of preferences towards public spending and parental fees for childcare

This article analyses the socio‐economic determinants of public preferences towards public spending and parental fees for childcare and how they are conditioned by institutional contexts. Previous studies of childcare policy preferences have focused on attitudes regarding the provision of care. However, when it comes to questions of financing, we know astonishingly little about how supportive individuals actually are of expanding pre‐school early childhood education and care, and how support varies across different socio‐economic groups in society. This is an important research gap because childcare provision and how it is financed have redistributive implications, which vary depending on the institutional design of childcare policy. Using novel and unique survey data on childcare preferences from eight European countries, we argue and show that preferences towards expanding childcare are more contested than it is often assumed. The institutional structure of childcare shapes how income matters for preferences towards how much should be spent and how provision should be financed. Where access to childcare is socially stratified, the poor and the rich develop different preferences towards either increasing public spending or reducing parental fees in order to improve their access to childcare. The findings in this article suggest that expanding childcare in systems characterised by unequal access can be politically contested due to diverging policy priorities of individuals from different social backgrounds.     

Comparing risk preferences over financial and environmental lotteries

This paper investigates whether preferences over environmental risks are best modeled using probability-weighted utility functions or can be reasonably approximated by expected utility (EU) or subjective EU models as is typically assumed. I elicit risk attitudes in the financial and environmental domains using multiple-price list experiment. I examine how subjects?? behavioral, attitudinal, and demographic characteristics affect their probability weighting functions first for financial risks, then for oil-spill risks. I find that most subjects tend to overweight extreme positive outcomes relative to expected utility in both the environmental and financial domains. Subjects are more likely to overemphasize low probability, extreme environmental outcomes than low probability, extreme financial outcomes, leading subjects to offer more support for mitigating environmental gambles than financial gambles with the same odds and equivalent outcomes. I conclude that EU models are likely to underestimate subjects?? willingness to pay for environmental cleanup programs or policies with uncertain outcomes.     

Arrow-Pratt Risk Aversion, Risk Premium and Decision Weights

This paper analyzes two issues: (a) the effect of decision-weights on risk premium, and (b) whether risk-aversion characterizes most investors. We theoretically show that cumulative prospect theory decision-weights systematically increase Arrow's risk premium, and may induce a positive risk premium even in the absence of risk-aversion. However, decision-weights may either increase or reduce Pratt's risk premium. We present three experiments revealing a striking result: a large proportion of the subjects' choices contradicts risk-aversion. This may be due to non-concave preferences, or to decision-weights. This result may have a dramatic impact on equilibrium models in economics and finance.     

Estimating Risk Attitudes using Lotteries: A Large Sample Approach

Attitudes towards risk play a major role in many economic decisions. In empirical studies it is quite often assumed that attitudes towards risk do not vary across individuals. This paper questions this assumption and analyses which factors influence an individual's risk attitude. Based on questions on lotteries in a large household survey we first semiparametrically estimate an index for risk aversion. We only make weak assumptions about the underlying decision process and our estimation method allows for generalisations of expected utility. We then estimate a structural model based on Cumulative Prospect Theory. Expected utility is strongly rejected and both the value function and the probability weighting function vary significantly with (among other things) age, income, and wealth of the individual.     

Following Families: Working Lone‐Mother Families and their Children

Analysis of poverty dynamics based on large‐scale survey data shows that there is limited mobility across the income distribution for most individuals and families. This includes lone parents, who are one of the groups most likely to stay poor over time. This high income poverty risk is reduced for those lone parents who are in employment and who receive state financial support through tax credits to supplement their wages. But income security in work can be difficult to achieve. This article reports on longitudinal qualitative research which has involved repeat interviews with lone mothers and their children over a period of three to four years. The analysis explores the experiences of sustaining employment while living on a low, but complex, income and highlights the challenges faced in seeking financial security in this context.     

The Value of a Statistical Life and the Coefficient of Relative Risk Aversion

Individuals’ risk preferences are estimated and employed in a variety of settings, notably including choices in financial, labor, and product markets. Recent work, especially in financial economics, provides estimates of individuals’ coefficients of relative risk aversion (R’s) in excess of one, and often significantly higher. However, it can be shown that high R’s imply equally high values for the income elasticity of the value of a statistical life. Yet estimates of this elasticity, derived from labor and product markets, are in the range of 0.5 to 0.6. Furthermore, it turns out that even an R below one is difficult to reconcile with these elasticity estimates. Thus, there appears to be an important (additional) anomaly involving individuals’ risk-taking behavior in different market settings.JEL Classification: D80, G11, G12, I10, J17     

Threshold effects of liquidity risk and credit risk on bank stability in the MENA region

This paper studies the relationships between both liquidity and credit risks on bank stability for a panel data set of 75 conventional banks belonging to 11 countries of the MENA region observed during the period 1999–2017. By performing a Panel Smooth Threshold Regression (PSTR) model developed by Gonzalez et al. (2005), estimation results show that the relationships between bank stability-credit risk and bank stability-liquidity risk are non-linear and characterized by the presence of two optimal thresholds which are equal to 13.16% for credit risk and 19.03% for liquidity risk. Contrary to their positive effects below these optimal thresholds, credit risk and liquidity risk become detrimental to bank stability in high regime.To ensure their stability, banks are encouraged to revise the primacy given to credit activity and diversify their activities to improve profitability. They are also recommended to strengthen their own funds and opt for appropriate restructuring to ease their small size. As for the States of the selected countries, they have to deeply reform their financial systems and develop the legal framework relating to new techniques of external management of banking risks including securitization and defeasance. Likewise, these states are fortified to ensure political stability, which is a key factor for banking and financial stability.     

人民币汇率波动与江苏上市公司权益风险的相关性研究——兼论美国金融危机的影响

以2005年7月21日汇改以来的人民币兑美元汇率和江苏省上市公司日收盘价为研究对象,利用DCC—MVGARCH模型实证分析人民币汇率波动与上市公司权益风险之间的动态相关性,结果表明：人民币汇率波动与上市公司权益风险间总体而言呈动态负相关关系,美国金融危机的冲击对这种相关性产生了显著的改变,相比而言,食品、纺织和运输类上市公司的这种相关性受金融危机的影响比较大。