Risky Choice in the Limelight

33 Pages Posted: 14 May 2012 Last revised: 1 May 2016

Guido Baltussen

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

Martijn J. van den Assem

VU Amsterdam - School of Business and Economics

Dennie van Dolder

VU Amsterdam - School of Business and Economics; Centre for Decision Research and Experimental Economics (CeDEx) - University of Nottingham

Date Written: October 1, 2014

Abstract

This paper examines how risk behavior in the limelight differs from that in anonymity. In two separate experiments we find that subjects are more risk averse in the limelight. However, risky choices are similarly path dependent in the different treatments. Under both limelight and anonymous laboratory conditions, a simple prospect theory model with a path-dependent reference point provides a better explanation for subjects’ behavior than a flexible specification of expected utility theory. Additionally, our findings suggest that ambiguity aversion depends on being in the limelight, that passive experience has little effect on risk taking, and that reference points are determined by imperfectly updated expectations.

Keywords: decision making under risk, risky choice, risk preferences, risk aversion, ambiguity aversion, limelight, accountability, public scrutiny, experience, game show, natural experiment, laboratory experiment, expected utility theory, prospect theory

JEL Classification: C91, D81

Suggested Citation

Baltussen, Guido and van den Assem, Martijn J. and van Dolder, Dennie, Risky Choice in the Limelight (October 1, 2014). Review of Economics and Statistics, Vol. 98, No. 2, pp. 318-332, May 2016. Available at SSRN: https://ssrn.com/abstract=2057134 or http://dx.doi.org/10.2139/ssrn.2057134

Guido Baltussen

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

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Martijn J. Van den Assem (Contact Author)

VU Amsterdam - School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Dennie Van Dolder

VU Amsterdam - School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Centre for Decision Research and Experimental Economics (CeDEx) - University of Nottingham ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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