Risk aversion elicitation: reconciling tractability and bias minimization

Risk attitude is known to be a key determinant of various economic and financial choices. Behavioral studies that aim to evaluate the role of risk attitudes in contexts of this type, therefore, require tools for measuring individual risk tolerance. Recent developments in decision theory provide such tools. However, the methods available can be time consuming. As a result, some practitioners might have an incentive to prefer “fast and frugal” methods to clean but more costly methods. In this article, we focus on a tractable procedure initially proposed by Holt and Laury (2002) to elicit risk attitude. We generalize this method to measure utility and risk aversion as follows. First, we allow measurement of probabilistic risk attitude through violations of expected utility due to probability weighting. Second, we use the outcome scale rather than the probability scale in the menu of choices. Third, we compare sure payoffs with lotteries instead of comparing non-degenerate lotteries. A within-subject experimental study illustrates the gains in tractability and bias minimization that can result from such an extension.     

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.     

面对风险：公众安全感研究

本研究从人的需求理论出发,从人身、财产、食品、劳动、个人信息等方面对安全感进行研究,结合风险社会理论和“不安全时代”理论,采用问卷调查的方法对全国28个省市7100户居民进行调查,通过描述统计和多变量回归分析发现,社会稳定、社会治安、生活环境,以及性别、受教育程度、身体状况、社会经济地位等个体因素对安全感存在不同程度影响,风险认知和风险地位同时存在于风险评价。     

Hope: An empirical study of attitude toward the timing of uncertainty resolution

Hope is experienced when there is enjoyment in delaying the resolution of uncertainty. The main objective of this article is to identify the phenomenon of hope. In addition, we empirically test several axiomatic theories of temporal preferences which have implications for attitudes toward the timing of uncertainty resolution. Overall, the data support the extension of recursive expected utility specification to incorporate a weighted utility model of attitude toward future uncertainty. We find that the instances where hopefulness are more prevalent tend to be associated with a small probability of occurrence of a large gain. Interestingly, the degree of hopefulness is not correlated with risk attitude.     

Rational behaviour: A comparison between the theory stemming from de Finetti's work and some other leading theories

We present some interesting features of de Finetti's decision theory; then we extended the theory. The extended theory has a normative character and is of the expected utility kind, but it is also very adaptable. By comparing it with some leading theories, we find that our theory is compatible with consideration of the whole probability distribution — it can even accommodate Allais' paradox -, while it is not generally compatible with probability weighting. We are mainly interested in the normative point of view.     

Assessing Child Protection Risk

Correspondence to Lorraine Waterhouse, Lecturer, Edinburgh Centre for Social Welfare Research, 23 Buccleuch Place, Edinburgh EH8 9LN. Summary The article outlines a set of child protection criteria usedby social workers for the evaluation of risk in sexual abusecases. The criteria were distilled from research findings basedon a sample of 51 child sexual abuse cases drawn from ChildProtection Registers in Scotland in 1987/89. Criteria dividebetween two types: primary (child care) criteria which concentrateon assessing circumstances prevailing within the family home;and secondary (disclosure) criteria which serve to either substantiateor refute disclosure. Primary criteria include attitude of non-abusingparent to alleged perpetrator; access between referred childand alleged perpetrator; type of abuse; age of child or youngperson; attitude of alleged perpetrator to allegations; andparental attitude to social work investigation. Secondary criteriainclude belief or disbelief of child; psychological symptomsin child; physical signs of abuse; children's attitudes towardsremaining at home; and criminal or psychiatric history includingalcohol or drug abuse. In practice the criteria tend to be usedlike a set of building blocks: tall towers represent higherrisk; low towers lesser risk. Given the enormous stakes involvedin child protection decisions, front-line practitioners wereunder considerable pressure to ‘play it safe’.     

Individual vs. couple behavior: an experimental investigation of risk preferences

In this article, we elicit both individuals’ and couples’ preferences assuming prospect theory (PT) as a general theoretical framework for decision under risk. Our experimental method, based on certainty equivalents, allows to infer measurements of utility and probability weighting at the individual level and at the couple level. Our main results are twofold. First, risk attitude for couples is compatible with PT and incorporates deviations from expected utility similar to those found in individual decision making. Second, couples’ attitudes towards risk are found to be consistent with a mix of individual attitudes, women being more influent on couples’ preferences at low probability levels.     

Willingness to Pay for Risk Reduction and Risk Aversion without the Expected Utility Assumption

By means of minimal assumptions on the individual preferences, I show that the Willingness To Pay (WTP) for both a FSD and SSD reduction of risk is the sum of a mean effect, a pure risk effect and a wealth effect. As a result, the WTP of a risk-averse decision maker may be lower than the WTP of a risk-neutral one, for a large class of individual preferences’ representation and a large class of risks.     

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.      

Risk Aversion when Gains are Likely and Unlikely: Evidence from a Natural Experiment with Large Stakes

In the television show Deal or No Deal a contestant is endowed with a sealed box, which potentially contains a large monetary prize. In the course of the show the contestant learns more information about the distribution of possible monetary prizes inside her box. Consider two groups of contestants, who learned that the chances of their boxes containing a large prize are 20% and 80% correspondingly. Contestants in both groups receive qualitatively similar price offers for selling the content of their boxes. If contestants are less risk averse when facing unlikely gains, the price offer is likely to be more frequently rejected in the first group than in the second group. However, the fraction of rejections is virtually identical across two groups. Thus, contestants appear to have identical risk attitudes over (large) gains of low and high probability.      

国家出资企业防范制度创新风险对策研究

国家出资企业制度创新风险包括决策风险和实施风险两类。制度创新风险具有可管理性、无向后传递性、效应滞后性与温和性的特征,依据风险概率和风险影响两个维度选择风险管理策略,包括避免风险、转移风险和慎重管理风险,建立以董事会风险管理委员会和监事会为主体的风险管理组织,监控制度创新风险。国家出资企业防范制度创新风险的对策是促使企业成为制度创新主体,建立制度创新实施机制,有效增加制度供给,实现正式制度与非正式制度兼容。

Abstract：

Systematic innovation Risks in enterprises capitalized by state consist of decision making risk and implementation risk.They have the properties such as being manageable,devoid of transmitting backward,lagging effect and being mild.Risk management strategies can be made according to risk probability and risk effect,including avoiding risk,transferring risk and prudent management of risk.The risk management organization can be established based on risk management committee made up of board of directors and board of supervisors in order to supervise systematic innovation risk.The study of the counter plan aims at turning the enterprises to the subject of this innovation,establishing the implementation mechanism,increasing the provision to the system and realizing the compatibility of formal system and informal one.     

Young People, Risk Taking and Risk Making: Some Thoughts for Social Work

Policy makers, professionals and the public have become increasinglyconcerned with identifying and managing young people who arenot only troubled or at risk, but troubling or risky. Socialwork, however, has been relatively silent on the subject. Insocial work practice, young people have become largely ‘someoneelse’s problem’; in the academy, relatively littlecritical attention has been given to their risk taking, or tothe way we ‘make’ or construct it. This paper takesan exploratory rather than systematically comprehensive journey,across a range of discursive terrains, to open up the debate.Examining current concerns with youth and risk, it exploressome of the social and psychological theory bases whereby youthis constructed as a risky business. Drawing on empirical researchfrom several disciplines, it examines patterns and dynamicsof young people’s risk taking, and explores concepts ofrisk culture and cultural learning, identity capital and Bourdieu’snotion of ‘habitus’, to frame these. The discussionhighlights the need for critically reflective social work tounderstand the complex interplay of identity and agency, structure,culture and context that underpins young people’s risktaking. It encourages us to scrutinize our judgements of whatis acceptable or unacceptable riskiness, what within and whatbeyond the pale.     

重大公共政策社会稳定风险评估中风险沟通机制的构建--基于北京市水价调整政策的案例分析

针对重大公共政策社会稳定风险评估（以下简称“稳评”）中利益相关方之间风险沟通不足的问题,引入IRGC的风险治理理念,建立重大公共政策稳评中风险沟通机制的分析框架,将风险沟通作为稳评工作的核心环节并贯穿于政策制定与实施的全过程。为了验证该分析框架的适用性,选取北京市水价调整政策为典型案例,对稳评过程中风险沟通机制的现实运作进行深入剖析和经验总结,并从注重评估工作与风险沟通的全程性、加强多元主体间的协商对话、充分发挥媒体作用等方面,就如何进一步推进和完善重大公共政策稳评机制展开探讨。     

A tractable method to measure utility and loss aversion under prospect theory

This paper provides an efficient method to measure utility under prospect theory. Our method minimizes both the number of elicitations required to measure utility and the cognitive burden for subjects, being based on the elicitation of certainty equivalents for two-outcome prospects. We applied our method in an experiment and were able to replicate the main findings on prospect theory, suggesting that our method measures what it is intended to. Our data confirmed empirically that risk seeking and concave utility can coincide under prospect theory. Utility did not depend on the probability used in the elicitation, which offers support for the validity of prospect theory.

Risk aversion and physical prowess: Prediction,choice and bias

This paper reports on experiments where individuals are asked to make risky decisions for themselves, and to predict the risky decisions of others. Prior research shows that people predict women to be more risk averse than men, a result we confirm. We investigate whether differences in physical prowess underlie actual and perceived gender differences, a hypothesis suggested by both evolutionary and economic theories. Overall we find that perceptions of others’ risk attitudes reflect stereotypes about gender and strength but tend to exaggerate the underlying relationships. Physically stronger and taller people and those perceived as attractive are predicted to be more risk tolerant, while women are perceived to be more risk averse. The impact of gender and physical prowess measures on actual gamble choices is much weaker. Sources of prediction bias are examined, showing that specific characteristics of the target and predictor lead to systematic over-prediction or under-prediction of risk aversion.     

Gender, Financial Risk, and Probability Weights

Women are commonly stereotyped as more risk averse than men in financial decision making. In this paper we examine whether this stereotype reflects gender differences in actual risk-taking behavior by means of a laboratory experiment with monetary incentives. Gender differences in risk taking may be due to differences in valuations of outcomes or in probability weights. The results of our experiment indicate that value functions do not differ significantly between men and women. Men and women differ in their probability weighting schemes, however. In general, women tend to be less sensitive to probability changes. They also tend to underestimate large probabilities of gains more strongly than do men. This effect is particularly pronounced when the decisions are framed in investment terms. As a result, women appear to be more risk averse than men in specific circumstances.     

On the Conditional Value-at-Risk probability-dependent utility function

The Expected Shortfall or Conditional Value-at-Risk (CVaR) has been playing the role of main risk measure in the recent years and paving the way for an enormous number of applications in risk management due to its very intuitive form and important coherence properties. This work aims to explore this measure as a probability-dependent utility functional, introducing an alternative view point for its Choquet Expected Utility representation. Within this point of view, its main preference properties will be characterized and its utility representation provided through local utilities with an explicit dependence on the assessed revenue’s distribution (quantile) function. Then, an intuitive interpretation for the related probability dependence and the piecewise form of such utility will be introduced on an investment pricing context, in which a CVaR maximizer agent will behave in a relativistic way based on his previous estimates of the probability function. Finally, such functional will be extended to incorporate a larger range of risk-averse attitudes and its main properties and implications will be illustrated through examples, such as the so-called Allais Paradox.     

Risk attitudes in a social context

Many experiments have demonstrated that when evaluating payoffs, people take not only their own payoffs into account, but also the payoffs of others in their social environment. Most of this evidence is found in settings where payoffs are riskless. It is plausible that if people care about the payoffs of others, they do so not only in a riskless context, but also in a risky one. This suggests that an individual’s decision making under risk depends on the risks others in his or her environment face. This paper is the first to test whether individuals’ risk attitudes are affected by the risks others face. The results show that risk attitudes appear to be less affected by others’ risks than expected, even though the same subjects do show concerns for inequality in a riskless setting. Interestingly, we find that people prefer risks to be independent across individuals in society rather than correlated.     

Risk seeking with diminishing marginal utility in a non-expected utility model

The present work takes place in the framework of a non-expected utility model under risk: the RDEU theory (Rank Dependent Expected Utility, first initiated by Quiggin under the denomination of Anticipated Utility), where the decision maker's behavior is characterized by two functionsu andf. Our first result gives a condition under which the functionu characterizes the decision maker's attitude towards wealth. Then, defining a decision maker as risk averter (respectively risk seeker) when he always prefers to any random variable its expected value (weak definition of risk aversion), the second result states that a decision maker who has an increasing marginal utility of wealth (a convex functionu) can be risk averse, if his functionf issufficiently below his functionu, hence if he is sufficientlypessimistic. Obviously, he can also be risk seeking with a diminishing marginal utility of wealth. This result is noteworthy because with a stronger definition of risk aversion/risk seeking, based on mean-preserving spreads, Chew, Karni, and Safra have shown that the only way to be risk averse (in their sense) in RDEU theory is to have, simultaneously, a concave functionu and a convex functionf.