Investigating Risky Choices Over Losses Using Experimental Data

Posted: 22 Sep 2006

See all articles by Charles F. Mason

Charles F. Mason

University of Wyoming - College of Business - Department of Economics

Jason F. Shogren

University of Wyoming

Chad Settle

University of Tulsa - Department of Economics

John A. List

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Abstract

We conduct a battery of experiments in which agents make choices from several pairs of all-loss-lotteries. Using these choices, we estimate a representation of individual preferences over lotteries. We find statistically and economically significant departures from expected utility maximization for many subjects. We also estimate a preference representation based on summary statistics for behavior in the population of subjects, and again find departures from expected utility maximization. Our results suggest that public policies based on an expected utility approach could significantly underestimate preferences and willingness to pay for risk reduction.

Keywords: risky decision-making, loss domain, experiments

JEL Classification: C91, D81

Suggested Citation

Mason, Charles F. and Shogren, Jason F. and Settle, Chad and List, John A., Investigating Risky Choices Over Losses Using Experimental Data. Journal of Risk and Uncertainty, Vol. 31, No. 2, pp.187-215, September 2005, Available at SSRN: https://ssrn.com/abstract=931972

Charles F. Mason (Contact Author)

University of Wyoming - College of Business - Department of Economics ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States
307-766-5336 (Phone)
307-766-5090 (Fax)

Jason F. Shogren

University of Wyoming ( email )

Department of Economics
BU292
Laramie, WY 82071-3985
United States
307-766-5430 (Phone)
307-766-5090 (Fax)

Chad Settle

University of Tulsa - Department of Economics ( email )

600 South College
Tulsa, OK 74104
United States
918-631-3157 (Phone)
918-631-2057 (Fax)

John A. List

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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