On a Simple Survey Measure of Individual Risk Aversion
30 Pages Posted: 20 Feb 2001
Date Written: November 2000
We ask individuals for their reservation price of a specified lottery and deduce their Arrow-Pratt measure of risk aversion. This allows direct testing of common hypotheses on risk attitudes in three datasets. We find that risk aversion indeed falls with income and wealth. Entrepreneurs are less risk averse than employees, civil servants are more risk averse than private sector employees, and women are more risk averse than men. We analyze six different specifications of the lottery question in a single data set and find quite consistent results. We conclude that a simple lottery question is a promising survey instrument to extract differences in risk attitudes among individuals.
JEL Classification: D81, C81
Suggested Citation: Suggested Citation