Abstract

http://ssrn.com/abstract=2200543
 
 

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Distinguishing Probability Weighting from Risk Misperceptions in Field Data


Levon Barseghyan


Cornell University

Francesca Molinari


Cornell University - Department of Economics

Ted O'Donoghue


Cornell University - Department of Economics

Joshua C. Teitelbaum


Georgetown University Law Center

2013

American Economic Review: Papers and Proceedings, Vol. 103, No. 3, pp. 580-585, 2013
Georgetown Law and Economics Research Paper No. 13-002

Abstract:     
The paper outlines a strategy for distinguishing rank-dependent probability weighting from systematic risk misperceptions in field data. Our strategy relies on singling out a field environment with two key properties: (i) the objects of choice are money lotteries with more than two outcomes and (ii) the ranking of outcomes differs across lotteries. We first present an abstract model of risky choice that elucidates the identification problem and our strategy. The model has numerous applications, including insurance choices and gambling. We then consider the application of insurance deductible choices and illustrate our strategy using simulated data.

Number of Pages in PDF File: 7

Keywords: probability weighting, risk misperceptions, insurance

JEL Classification: D01, D03, D12, D81, G22

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Date posted: January 15, 2013 ; Last revised: June 14, 2013

Suggested Citation

Barseghyan, Levon and Molinari, Francesca and O'Donoghue, Ted and Teitelbaum, Joshua C., Distinguishing Probability Weighting from Risk Misperceptions in Field Data (2013). American Economic Review: Papers and Proceedings, Vol. 103, No. 3, pp. 580-585, 2013; Georgetown Law and Economics Research Paper No. 13-002. Available at SSRN: http://ssrn.com/abstract=2200543 or http://dx.doi.org/10.2139/ssrn.2200543

Contact Information

Levon Barseghyan
Cornell University ( email )
Ithaca, NY 14853
United States
Francesca Molinari
Cornell University - Department of Economics ( email )
414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6367 (Phone)
607-255-2818 (Fax)
HOME PAGE: http://www.arts.cornell.edu/econ/fmolinari/
Ted O'Donoghue
Cornell University - Department of Economics ( email )
414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6287 (Phone)
607-255-2818 (Fax)
Joshua C. Teitelbaum (Contact Author)
Georgetown University Law Center ( email )
600 New Jersey Avenue NW
Washington, DC 20001
United States
202-661-6589 (Phone)
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References:  11
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