Revisiting Risk Aversion and Incentive Effects

11 Pages Posted: 7 Aug 2016

See all articles by Eyal Ert

Eyal Ert

The Hebrew University of Jerusalem, Dept. of Environmental Economics and Management

Ernan Haruvy

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: August 6, 2016

Abstract

The Holt-Laury measure for risk aversion has been used extensively in economic studies to measure individuals’ risk aversion. The idea behind this measure is that individuals have stable risk preferences when making decisions under risk. We show that having repeated experiences with the Holt-Laury task can move individuals from exhibiting “risk aversion” to displaying “risk neutrality.” This finding suggests that either risk preferences are not robust to a few experiences or that responses to the tasks indicate something else. We show that a simple model of adaptation can capture this behavioral pattern.

Keywords: Risk aversion, Learning, Experiment

JEL Classification: C91, D81, D83

Suggested Citation

Ert, Eyal and Haruvy, Ernan, Revisiting Risk Aversion and Incentive Effects (August 6, 2016). Available at SSRN: https://ssrn.com/abstract=2819538 or http://dx.doi.org/10.2139/ssrn.2819538

Eyal Ert

The Hebrew University of Jerusalem, Dept. of Environmental Economics and Management ( email )

P.O. Box 12
Rehovot, 76100
Israel

Ernan Haruvy (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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