Estimating Risk Attitudes in Conventional and Artefactual Lab Experiments: The Importance of the Underlying Assumptions

16 Pages Posted: 9 Apr 2012

See all articles by Andreas C. Drichoutis

Andreas C. Drichoutis

University of Ioannina - Department of Economics; Agricultural University of Athens - Department of Agricultural Economics

Phoebe Koundouri

Athens University of Economics and Business - Department of International and European Economic Studies; University of Reading - Department of Economics

Date Written: 2012

Abstract

In this paper the authors assess the importance of sample type in the estimation of risk preferences. The authors elicit and compare risk preferences from student subjects and subjects drawn from the general population, using the multiple price list method devised by Holt and Laury (Risk aversion and incentive effects, 2002). The authors find evidence suggesting that under Rank Dependent Utility and an expo-power function, students exhibit similar risk attitudes to subjects drawn from the general population. However, when the authors assume an incorrect characterization of risk preferences, in particular they adopt the framework of Expected Utility theory and a Constant Relative Risk Aversion function, their estimation results lead to erroneous inferences. In this case, students are on average risk averse, while subjects drawn from the general population exhibit risk loving preferences. The results have implications for economic policy making under uncertainty.

Keywords: Risk aversion, CRRA, expo-power, rank dependent utility, multiple price list

JEL Classification: C91, D01, D81

Suggested Citation

Drichoutis, Andreas C. and Koundouri, Phoebe, Estimating Risk Attitudes in Conventional and Artefactual Lab Experiments: The Importance of the Underlying Assumptions (2012). Economics Discussion Paper No. 2012-19, Available at SSRN: https://ssrn.com/abstract=2035308 or http://dx.doi.org/10.2139/ssrn.2035308

Andreas C. Drichoutis (Contact Author)

University of Ioannina - Department of Economics ( email )

45110 Ioannina
Greece

HOME PAGE: http://works.bepress.com/andreas_drichoutis/

Agricultural University of Athens - Department of Agricultural Economics ( email )

Iera Odos 75
Athens, Votanikos 11855
Greece

Phoebe Koundouri

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece
+0030 210 8203147 (Phone)
+0030 210 8214122 (Fax)

HOME PAGE: http://www.econ.ucl.ac.uk/downloads/koundouri/cv.pdf

University of Reading - Department of Economics ( email )

Reading, RG6 6AA
United Kingdom
+44 - (0)118 - 9875123 (Phone)
+44 - (0)118 - 9750236 (Fax)

HOME PAGE: http://www.rdg.ac.uk/economics/koundouri.html

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