Higher Order Risk Preferences: New Experimental Measures, Determinants and Field Behavior

95 Pages Posted: 3 Sep 2020

See all articles by Sebastian O. Schneider

Sebastian O. Schneider

Max Planck Institute for Research on Collective Goods

Matthias Sutter

Max Planck Institute for Research on Collective Goods

Multiple version iconThere are 3 versions of this paper

Date Written: August 31, 2020

Abstract

We use a novel method to elicit and measure higher order risk preferences (prudence and temperance) in an experiment with 658 adolescents. In line with theoretical predictions, we find that higher order risk preferences – particularly prudence – are strongly related to adolescents' field behavior, including their financial decision making, eco-friendly behavior, and health status, including addictive behavior. Most importantly, we show that dropping prudence and temperance from the analysis of students' field behavior would yield largely misleading conclusions about the relation of risk aversion to these domains of field behavior. Thus our paper puts previous work that ignored higher order risk preferences into an encompassing perspective and clarifies which orders of risk preferences can help understand field behavior of adolescents.

Keywords: Higher order risk preferences, prudence, temperance, risk aversion, field behavior, adolescents, health, addictive behavior, smartphone addiction, experiment

JEL Classification: C93, D81, D91, J13

Suggested Citation

Schneider, Sebastian O. and Sutter, Matthias, Higher Order Risk Preferences: New Experimental Measures, Determinants and Field Behavior (August 31, 2020). MPI Collective Goods Discussion Paper, No. 2020/22, Available at SSRN: https://ssrn.com/abstract=3683782 or http://dx.doi.org/10.2139/ssrn.3683782

Sebastian O. Schneider

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

Matthias Sutter (Contact Author)

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

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