Revisiting Risk Aversion and Incentive Effects
11 Pages Posted: 7 Aug 2016
Date Written: August 6, 2016
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: Suggested Citation