On the Coefficient of Variation as a Measure of Risk Sensitivity

15 Pages Posted: 16 Jan 2011

See all articles by James C. Cox

James C. Cox

Georgia State University - Department of Economics

Vjollca Sadiraj

Georgia State University - Department of Economics

Date Written: January 2011

Abstract

Weber, Shafir, and Blais (2004) advocate use of the coefficient of variation (CV) as a measure of risk sensitivity and apply CV in a meta-analysis of data for risky choices by humans and animals. We critically re-examine the CV measure as either a normative or descriptive criterion for decision under risk. CV fails as a normative criterion because it violates first order stochastic dominance. Whether or not CV succeeds as a descriptive criterion depends on its consistency or inconsistency with data from experiments designed to test its distinctive properties. We report an experiment with human subjects motivated by salient monetary payoffs. The data are inconsistent with the hypothesis that the CVs of risky lotteries are a significant determinant of subjects’ choices between the lotteries and certain payoffs.

Suggested Citation

Cox, James C. and Sadiraj, Vjollca, On the Coefficient of Variation as a Measure of Risk Sensitivity (January 2011). Andrew Young School of Policy Studies Research Paper Series No. 11-05, Available at SSRN: https://ssrn.com/abstract=1740730 or http://dx.doi.org/10.2139/ssrn.1740730

James C. Cox (Contact Author)

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States
404-651-8888 (Phone)
404-651-0425 (Fax)

Vjollca Sadiraj

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States

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