Posted: 9 Jun 2009
We propose an analytical distinction between standard risk aversion based on the valuation of a single gamble and marginal risk aversion based on the change in valuation between two gambles. We measure marginal risk aversion in two dimensions - mean and variance. Data from a field experiment is used to study marginal risk aversion. Our results suggest that individuals rely on a reference gamble when assessing marginal risk. Individual responses to marginal changes in mean and variance are nearly identical in direction and magnitude - suggesting that information on both standard and marginal risk aversion is needed to accurately model behavior.
Suggested Citation: Suggested Citation
Just, David R. and Lybbert , Travis J., Risk Averters that Love Risk? Marginal Risk Aversion in Comparison to a Reference Gamble. American Journal of Agricultural Economics, Vol. 91, No. 3, pp. 612-626, August 2009. Available at SSRN: https://ssrn.com/abstract=1416340 or http://dx.doi.org/10.1111/j.1467-8276.2009.01273.x