Measuring Risk Aversion Model-Independently

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: We propose a new method to elicit individuals' risk preferences. Similar to Holt and Laury (2002), we use a simple multiple price-list format. However, our method is based on a general notion of increasing risk, which allows classifying individuals as more or less risk-averse without assuming a specic utility framework. In a laboratory experiment we compare both methods. Each classies individuals almost identically as risk-averse, -neutral, or -seeking. However, classications of individuals as more or less risk-averse dier substantially. Moreover, our approach yields higher measures of risk aversion, and only with our method these measures are robust toward increasing stakes.

Keywords: Risk Aversion; Multiple Price-List; Elicitation; Laboratory Experiment; Holt and Laury Method; Mean Preserving Spreads; Non-EUT; Increasing Risk (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2010-10-11
New Economics Papers: this item is included in nep-exp and nep-upt
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Citations: View citations in EconPapers (10)

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