Lost in State Space: Are Preferences Stable?

36 Pages Posted: 27 Dec 2005 Last revised: 15 Jan 2008

See all articles by Steffen Andersen

Steffen Andersen

Copenhagen Business School - Department of Finance; CEPR

Glenn W. Harrison

Georgia State University - J. Mack Robinson College of Business

Morten I. Lau

Durham Business School

E. Elisabet Rutström

University of Central Florida - College of Business Administration

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Abstract

We use field experiments to examine the temporal stability of risk preferences. Stability can mean that a given subject exhibits the same risk attitudes over time, or that their risk attitudes are a stable function of states of nature that change over time. It is quite possible for risk preferences to be stable in either, both or neither of these senses. We report the results of a large-scale panel experiment undertaken in the field designed to examine this issue. Over a 17 month period we elicited risk preferences from subjects chosen to be representative of the adult Danish population. During this period we re-visited many of these subjects and repeated a risk aversion elicitation task. In each visit we also elicited information on their individual characteristics, as well as their expectations about the state of their own economic situation and macroeconomic variables. We control for changes in the subject's perceived states of nature, as well as the possible effects of endogenous sample selection into the re-test. We find some variation in risk attitudes over time, but we do not detect a general tendency for risk attitudes to increase or decrease over a 17-month span. The results also suggest that risk preferences are state contingent with respect to personal finances.

Keywords: Field experiments, risk aversion

JEL Classification: C93, D81

Suggested Citation

Andersen, Steffen and Harrison, Glenn William and Lau, Morten Igel and Rutstrom, Elisabet, Lost in State Space: Are Preferences Stable?. International Economic Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=872327

Steffen Andersen (Contact Author)

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

CEPR ( email )

London
United Kingdom

Glenn William Harrison

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States
407-489-3088 (Phone)
253-830-7636 (Fax)

HOME PAGE: http://www.cear.gsu.edu/

Morten Igel Lau

Durham Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Elisabet Rutstrom

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

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