Risk Preferences and Economic Shocks: Experimental Evidence

32 Pages Posted: 13 Feb 2020

See all articles by Jonas Dorlöchter

Jonas Dorlöchter

University of Duisburg-Essen

Erwin Amann

affiliation not provided to SSRN

Date Written: January 13, 2020

Abstract

We demonstrate in our experiment that an exogenous shock does not lead to increasing risk aversion, and has ultimately no significant impact on investors’ risk preference in general. To do so, we keep subjects’ risk and return expectations fixed and focus solely on loss in wealth. As a theoretical framework, we use the expected utility approach and take the class of HARA-utility functions to analyse subjects’ preferences. Particularly, our methodical approach affords insights into the impact of economic fluctuations on investors’ risk-taking and the measurement of risk preferences per se. We conclude that cautious investment behavior after an economic crisis might rather be due to changes in the perception of risk and return. Moreover, we give evidence that, in general, it is not sufficient to explain investors’ risk-taking solely by preferences.

Keywords: risk preference, perception, beliefs, economic shock, experiment

JEL Classification: D90, G01, G11, G40

Suggested Citation

Dorlöchter, Jonas and Amann, Erwin, Risk Preferences and Economic Shocks: Experimental Evidence (January 13, 2020). Available at SSRN: https://ssrn.com/abstract=3522385 or http://dx.doi.org/10.2139/ssrn.3522385

Jonas Dorlöchter (Contact Author)

University of Duisburg-Essen ( email )

Universitätsstrasse 9
Essen, 45141
Germany

Erwin Amann

affiliation not provided to SSRN

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