Modeling Preference Heterogeneity Within and Across Behavioral Types: Evidence from a Real-world Betting Market

38 Pages Posted: 26 Mar 2013 Last revised: 25 Oct 2021

Date Written: October 21, 2021

Abstract

While it is commonly accepted that risk preferences differ across individuals, studies that estimate them typically allow for limited heterogeneity. We develop a methodology that allows for richer representation of heterogeneity both within and across utility types characterized by different behavioral features. This enables us to improve individual- and population-level estimates, and to assess the relative importance of loss aversion and probability weighting, and their prevalence in the population. Applying our model to individual sports-betting choices, we find that utility curvature alone does not explain observed choices and, while two-thirds of individuals exhibit loss aversion, all exhibit probability weighting.

Keywords: Risk Preferences, Prospect Theory, Loss Aversion, Probability Weighting, Discrete Choice, Mixture Model, Hierarchical Model, Bayesian Estimation

JEL Classification: D90, C11, C51, D81, D12, L83

Suggested Citation

Andrikogiannopoulou, Angie and Papakonstantinou, Filippos, Modeling Preference Heterogeneity Within and Across Behavioral Types: Evidence from a Real-world Betting Market (October 21, 2021). Swiss Finance Institute Research Paper No. 13-53, Available at SSRN: https://ssrn.com/abstract=2239194 or http://dx.doi.org/10.2139/ssrn.2239194

Angie Andrikogiannopoulou (Contact Author)

King's College London

Strand
London, WC2R 2LS
United Kingdom

Filippos Papakonstantinou

King's College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

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