Estimating Risk Attitudes Using Lotteries: A Large Sample Approach

Tilburg University, CentER Discussion Paper Series No. 1999-12

Posted: 27 Sep 1999

See all articles by Bas Donkers

Bas Donkers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM); Tinbergen Institute

Arthur van Soest

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

Bertrand Melenberg

Tilburg University - Center for Economic Research (CentER)

Date Written: 1999

Abstract

Attitudes towards risk play a major role in many economic decisions. In empirical studies one quite often assumes that attitudes towards risk do not vary across individuals. This papers questions this assumption and analyses which factors influence an individual's risk attitude. Based on questions on lotteries in a large household survey we semiparametrically estimate an index for risk aversion. We only make weak assumptions about the underlying decision process, and our estimation method allows for generalisations of expected utility. We find strong links between risk aversion and gender, education level, and income of the individual. We also estimate a structural model based on Cumulative Prospect Theory and find that the value function depends on an index that is very similar to the index of risk aversion. Expected utility is strongly rejected and the probability weighting function varies significantly with gender, age, and income of the individual.

JEL Classification: D81, D82

Suggested Citation

Donkers, Bas and van Soest, Arthur H. O. and Melenberg, Bertrand, Estimating Risk Attitudes Using Lotteries: A Large Sample Approach (1999). Tilburg University, CentER Discussion Paper Series No. 1999-12, Available at SSRN: https://ssrn.com/abstract=166489

Bas Donkers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
Rotterdam, NL 3000 DR
Netherlands
+31 10 408 2411 (Phone)
+31 10 408 9169 (Fax)

HOME PAGE: http://https://www.eur.nl/en/people/bas-donkers

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 2411 (Phone)
+31 10 408 9169 (Fax)

HOME PAGE: http://https://www.eur.nl/en/people/bas-donkers

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Arthur H. O. van Soest

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 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

Bertrand Melenberg (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2730 (Phone)

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