Linking Subjective and Incentivized Risk Attitudes: The Importance of Losses

Journal of Risk and Uncertainty, Forthcoming

Posted: 19 Jan 2019 Last revised: 29 Feb 2020

See all articles by Johannes Gerd Jaspersen

Johannes Gerd Jaspersen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Marc A. Ragin

University of Georgia; University of Georgia - Department of Insurance, Legal Studies, Real Estate

Justin R. Sydnor

University of Wisconsin - Madison

Date Written: January 9, 2019

Abstract

The “general risk question” (GRQ) has been established as a quick way to meaningfully elicit subjective attitudes toward risk and correlates well with real-world behaviors involving risk. However, little is known about what aspects of attitudes toward financial risk are captured by the GRQ. We examine how answers to the GRQ correlate with different preference motives and biases toward financial risk using an incentivized choice task (n=1,730). We find that the GRQ has meaningful correlation with loss aversion and attitudes toward variation in financial losses, but much weaker to non-existent correlations with attitudes toward variation in financial gains, likelihood insensitivity, and certainty preferences. These results suggest that practical applications using the GRQ as an index for financial risk preferences may be most appropriate in settings where decisions rest on attitudes toward financial losses.

Keywords: Risk Aversion, Experimental Measurement, Prospect Theory, General Risk Question

JEL Classification: C90, D00, D81

Suggested Citation

Jaspersen, Johannes Gerd and Ragin, Marc A. and Ragin, Marc A. and Sydnor, Justin R., Linking Subjective and Incentivized Risk Attitudes: The Importance of Losses (January 9, 2019). Journal of Risk and Uncertainty, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3312898 or http://dx.doi.org/10.2139/ssrn.3312898

Johannes Gerd Jaspersen (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Schackstr. 4
Munich, DE 80539
Germany

Marc A. Ragin

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

610 S Lumpkin Street
Moore-Rooker A417
Athens, GA 30602-6254
United States
7067132775 (Phone)

University of Georgia ( email )

610 S Lumpkin Street
Moore-Rooker A417
Athens, GA 30602-6254
United States
7067132775 (Phone)

Justin R. Sydnor

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

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