Risk Aversion When Gains are Likely and Unlikely: Evidence from a Natural Experiment With Large Stakes

Theory and Decision, Vol. 64, No. 2-3, pp. 395-420, March 2008

23 Pages Posted: 2 Apr 2006 Last revised: 13 Apr 2009

See all articles by Pavlo R. Blavatskyy

Pavlo R. Blavatskyy

Montpellier Business School

Ganna Pogrebna

Columbia University

Date Written: 2008

Abstract

In the television show Deal or No Deal a contestant is endowed with a sealed box, which potentially contains a large monetary prize. In the course of the show the contestant learns more information about the distribution of possible monetary prizes inside her box. Consider two groups of contestants, who learned that the chances of their boxes containing a large prize are 20% and 80% correspondingly. Contestants in both groups receive qualitatively similar price offers for selling the content of their boxes. If contestants are less risk averse when facing unlikely gains, the price offer is likely to be more frequently rejected in the first group than in the second group. However, the fraction of rejections is virtually identical across two groups. Thus, contestants appear to have identical risk attitudes over (large) gains of low and high probability.

Keywords: risk attitude, risk aversion, risk seeking, natural experiment

JEL Classification: C93, D81

Suggested Citation

Blavatskyy, Pavlo R. and Pogrebna, Ganna, Risk Aversion When Gains are Likely and Unlikely: Evidence from a Natural Experiment With Large Stakes (2008). Theory and Decision, Vol. 64, No. 2-3, pp. 395-420, March 2008. Available at SSRN: https://ssrn.com/abstract=893982

Pavlo R. Blavatskyy (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Ganna Pogrebna

Columbia University ( email )

419 Schermerhorn Hall
New York, NY 10027
United States

HOME PAGE: http://www.gannapogrebna.com

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
110
Abstract Views
1,065
rank
260,721
PlumX Metrics