Risk aversion elicitation: reconciling tractability and bias minimization |
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Authors: | Mohammed Abdellaoui Ahmed Driouchi Olivier L’Haridon |
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Institution: | 1.Greg-HEC, HEC-Paris,Jouy-en-Josas,France;2.CNRS,Paris,France;3.Al Akhawayn University,Ifrane,Morocco;4.University Paris Sorbonne,Paris,France |
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Abstract: | 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. |
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Keywords: | |
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