A Fundamental Prediction Error: Self-Others Discrepancies in Risk Preference

Abstract

This research examined whether people can accurately predict the risk preferences of others.Three experiments featuring different designs revealed a systematic bias: that participants predicted others to be more risk seeking than themselves in risky choices, regardless of whether the choices were between options with negative outcomes or with positive outcomes. This self-others discrepancy persisted even if a monetary incentive was offered for accurate prediction. However, this discrepancy occurred only if the target of prediction was abstract and vanished if the target was vivid. A risk-as-feelings hypothesis was introduced to explain these findings.

Keywords: risk preference, risk attitude, self-other difference, prediction, false consensus

JEL Classification: D81, D11, D12, D91