Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey

59 Pages Posted: 27 Sep 2005

See all articles by Thomas J. Dohmen

Thomas J. Dohmen

Institute for the Study of Labor (IZA); Maastricht University - Business Investment Research Center (BIRC)

Armin Falk

University of Bonn - Economic Science Area; briq - Institute on Behavior & Inequality

David Huffman

IZA Institute of Labor Economics; Swarthmore College

Uwe Sunde

Ludwig Maximilian University of Munich (LMU)

Jürgen Schupp

German Institute for Economic Research (DIW Berlin); Institute for Sociology, Freie Universität

Gert G. Wagner

German Institute for Economic Research (DIW Berlin); Berlin University of Technology; German Socio-Economic Panel Study (SOEP)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2005

Abstract

This paper presents new evidence on the distribution of risk attitudes in the population, using a novel set of survey questions and a representative sample of roughly 22,000 individuals living in Germany. Using a question that asks about willingness to take risks on an 11-point scale, we find evidence of heterogeneity across individuals, and show that willingness to take risks is negatively related to age and being female, and positively related to height and parental education. We test the behavioral relevance of this survey measure by conducting a complementary field experiment, based on a representative sample of 450 subjects, and find that the measure is a good predictor of actual risk-taking behavior. We then use a more standard lottery question to measure risk preference, and find similar results regarding heterogeneity and determinants of risk preferences. The lottery question makes it possible to estimate the coefficient of relative risk aversion for each individual in the sample. Using five questions about willingness to take risks in specific domains - car driving, financial matters, sports and leisure, career, and health - the paper also studies the impact of context on risk attitudes, finding a strong but imperfect correlation across contexts. Using data on a collection of risky behaviors from different contexts, including traffic offenses, portfolio choice, smoking, occupational choice, participation in sports, and migration, the paper compares the predictive power of all of the risk measures. Strikingly, the general risk question predicts all behaviors whereas the standard lottery measure does not. The best overall predictor for any specific behavior is typically the corresponding context-specific measure. These findings call into the question the current preoccupation with lottery measures of risk preference, and point to variation in risk perceptions as an understudied determinant of risky behavior.

Keywords: risk preferences, preference stability, experimental validation, field experiment, SOEP, gender differences, age, height, subjective well-being

JEL Classification: D0, D1, D80, D81, C91, C93

Suggested Citation

Dohmen, Thomas and Falk, Armin and Huffman, David and Sunde, Uwe and Schupp, Juergen and Wagner, Gert G., Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey (September 2005). IZA Discussion Paper No. 1730, Available at SSRN: https://ssrn.com/abstract=807408 or http://dx.doi.org/10.2139/ssrn.807408

Thomas Dohmen

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Maastricht University - Business Investment Research Center (BIRC) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31-43-388 3832 (Phone)
+31-43-388 4856 (Fax)

Armin Falk (Contact Author)

University of Bonn - Economic Science Area ( email )

briq - Institute on Behavior & Inequality

Schaumburg-Lippe-Straße 5-9
Bonn, 53113
Germany

HOME PAGE: http://www.briq-institute.org/

David Huffman

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Swarthmore College

500 College Ave
Swarthmore, PA 19081
United States

Uwe Sunde

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Juergen Schupp

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, D-10117
Germany
+49 30 8 978 9238 (Phone)
+49 30 8 978 9109 (Fax)

HOME PAGE: http://www.diw.de/deutsch/das_institut/mitarbeiter/innen/26652.html?uid=jschupp

Institute for Sociology, Freie Universität ( email )

Garystr. 55
I
Berlin, D-14195
Germany

HOME PAGE: http://www.polsoz.fu-berlin.de/soziologie/mitarbeiter/b_hochschullehrer/schupp.html

Gert G. Wagner

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany
+49 30 8 978 9290 (Phone)
+49 30 8 978 9200 (Fax)

HOME PAGE: http://www.diw.de/programme/jsp/MA.jsp?language=en&uid=gwagner

Berlin University of Technology ( email )

Straße des 17
Berlin, 10623
Germany
+30 8 978 9283 (Phone)

German Socio-Economic Panel Study (SOEP) ( email )

DIW Berlin
10108 Berlin, Berlin
Germany
+49 30 8978 9290 (Phone)
+49 30 8978 9109 (Fax)

HOME PAGE: http://www.diw/en/soep

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