Measuring Risk Aversion Model-Independently

Maier, Johannes and Rüger, Maximilian (2010): Measuring Risk Aversion Model-Independently. Discussion Papers in Economics 2010-33

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.

• Item Type: Paper (Discussion Paper)
• Status: Preprint
• Keywords: Risk Aversion, Multiple Price-List, Elicitation, Laboratory Experiment, Holt and Laury Method, Mean Preserving Spreads, Non-EUT, Increasing Risk
• Collections: Economics; Economics > Discussion Papers in Economics
• Subjects: 300 Social sciences > 300 Social sciences, sociology and anthropology; 300 Social sciences > 330 Economics
• JEL Classification: D81, C91
• Language: English