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Heterogeneity in Risky Choice Behaviour in a Broad Population

39 Pages Posted: 2 Mar 2009  

Hans-Martin von Gaudecker

University of Bonn - Economic Science Area; Netspar; Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA)

Arthur van Soest

Tilburg University; Netspar; RAND Corporation; Institute for the Study of Labor (IZA)

Erik Wengström

University of Copenhagen - Department of Economics

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Abstract

We analyse risk preferences using an experiment with real incentives in a representative sample of 1,422 Dutch respondents. Our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics: Utility curvature, loss aversion, preferences towards the timing of uncertainty resolution, and the propensity to choose randomly rather than on the basis of preferences. We find that all four parameters contribute to explaining choice behaviour. The structural parameters are significantly associated with socio-economic variables, but it is essential to incorporate unobserved heterogeneity in each of them to match the rich variety of choice patterns in the data.

Keywords: risk aversion, loss aversion, uncertainty resolution, field experiments

JEL Classification: C90, D81

Suggested Citation

von Gaudecker, Hans-Martin and van Soest, Arthur and Wengström, Erik, Heterogeneity in Risky Choice Behaviour in a Broad Population. IZA Discussion Paper No. 4022. Available at SSRN: https://ssrn.com/abstract=1351186

Hans-Martin Von Gaudecker (Contact Author)

University of Bonn - Economic Science Area ( email )

Adenauerallee 24-42
D-53113 Bonn
Germany

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany

Arthur H. O. van Soest

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

Institute for the Study of Labor (IZA)

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

Erik Wengström

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

HOME PAGE: http://www.econ.ku.dk/wengstrom

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