Measuring Normative Risk Preferences

25 Pages Posted: 14 Feb 2017

See all articles by Gosse Alserda

Gosse Alserda

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM)

Date Written: February 07, 2017

Abstract

The results of eliciting risk preferences depend on the elicitation method. Different methods of measuring the same variable tend to produce different results. This raises the question whether normative risk preferences can be elicited at all. Using two types of manipulation, I assess the normative value of risk preference elicitation methods. Following IRT, the results of the multiple lottery choice method are combined with two qualitative methods into a composite score. The responses of 9,235 pension fund members to a dedicated survey indicate this composite score approximates the latent variable normative risk preferences better than individual method responses do, substantially reducing measurement noise and method-specific biases. Analysis of the manipulations shows that both the results and the normative value of the risk preference elicitation methods depend on the specific amounts, order, and endowment chosen. Combining simpler methods with more advanced methods framed closely to the relevant situation increases the normative value of elicited risk preferences.

Keywords: Normative Risk Preferences, Composite Score, Multiple Lottery Choice, Item Response Theory, Manipulations

Suggested Citation

Alserda, Gosse, Measuring Normative Risk Preferences (February 07, 2017). ERIM Report Series Reference No. 2916700. Available at SSRN: https://ssrn.com/abstract=2916700 or http://dx.doi.org/10.2139/ssrn.2916700

Gosse Alserda (Contact Author)

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

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

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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