Eliciting risk preferences: When is simple better?
Tóm tắt
We study the estimation of risk preferences with experimental data and focus on the trade-offs when choosing between two different elicitation methods that have different degrees of difficulty for subjects. We analyze how and when a simpler, but coarser, elicitation method may be preferred to the more complex, but finer, one. Results indicate that the more complex measure has overall superior predictive accuracy, but its downside is that subjects exhibit noisier behavior. Our main result is that subjects’ numerical skills can help better assess this tradeoff: the simpler task may be preferred for subjects who exhibit low numeracy, as it generates less noisy behavior but similar predictive accuracy. For subjects with higher numerical skills, the greater predictive accuracy of the more complex task more than outweighs the larger noise. We also explore preference heterogeneity and provide methodological suggestions for future work.
Tài liệu tham khảo
Andersen, S., Harrison, G., Lau, M., & Rutström, E. (2008). Eliciting risk and time preferences. Econometrica, 76(3), 583–618.
Barr, A., & Genicot, G. (2008). Risk sharing, commitment, and information: An experimental analysis. Journal of the European Economic Association, 6(6), 1151–1185.
Becker, G., DeGroot, M. H., & Marschak, J. (1964). Measuring utility by a single-response sequential method. Behavioral Science, 9, 226–232.
Berg, J., Dickhaut, J., & McCabe, K. (2005). Risk preference instability across institutions: A dilemma. Proceedings of the National Academies of Science, 102, 4209–4214.
Binswanger, H. (1980). Attitudes toward risk: Experimental measurement in rural India. American Journal of Agricultural Economics, 62, 395–407.
Binswanger, H. (1981). Attitudes toward risk: Theoretical implications of an experiment in rural India. Economic Journal, 91, 867–890.
Bohm, P., Linden, J., & Sonnegard, J. (1997). Eliciting reservation prices: Becker-DeGroot-Marschak mechanisms vs. markets. Economic Journal, 107, 1079–1089.
Burks, S., Carpenter, J., Götte, L., & Rustichini, A. (2009). Cognitive skills explain economic preferences, strategic behavior, and job attachment. Proceedings of the National Academy of Sciences, 106(19), 7745–7750.
Dohmen, T., Falk, A., Huffman, D., & Sunde, U. (2010). Are risk aversion and impatience related to cognitive ability? American Economic Review, 100(3), 1238–1260.
Eckel, C. (1999). Commentary on “The effects of financial incentives in experiments: A review and capital-labor production framework.” Journal of Risk and Uncertainty, 19(1–3), 47–48.
Eckel, C. (2007). Experiments on gender differences. In S. N. Durlauf & L. E. Blume (Eds.), The New Palgrave Dictionary of Economics (2nd ed.). Basingstoke: Palgrave Macmillan.
Eckel, C., & Grossman, P. (2002). Sex differences and statistical stereotyping in attitudes toward financial risk. Evolution and Human Behavior, 23(4), 281–295.
Eckel, C., & Grossman, P. (2008). Forecasting risk attitudes: An experimental study using actual and forecast gamble choices. Journal of Economic Behavior and Organization, 68(1), 1–17.
Eckel, C., Grossman, P., Johnson, C., Milano, A., Rojas, C., and Wilson, R. (2007). Explaining risk preferences in high school students: A preliminary look. CBEES Working paper, University of Texas at Dallas.
Eisenberger, R., & Weber, M. (1995). Willingness-to-pay and willingness-to-accept for risky and ambiguous lotteries. Journal of Risk and Uncertainty, 10, 223–33.
Engle-Warnick, J., Escobal, J., and Laszlo, S. (2005). The effect of an additional alternative on measured risk preferences in a field experiment. Unpublished manuscript. Experimental 0511003, EconWPA.
Harbaugh, W., Krause, K., & Vesterlund, Lise. (2002). Risk attitudes of children and adults: Choices over small and large probability gains and losses. Experimental Economics, 5(1), 53–84.
Harbaugh, W. T., Krause, K., & Vesterlund, L. (2010). The fourfold pattern of risk attitudes in choice and pricing tasks. The Economic Journal, 120(545), 595–611.
Harrison, G. (1986). An experimental test for risk aversion. Economics Letters, 21, 7–11.
Harrison, G. (1992). Theory and misbehavior of first-price auctions: Reply. American Economic Review, 82, 1426–1443.
Hey, J., & Orme, C. (1994). Investigating generalizations of expected utility using experimental data. Econometrica, 62(6), 1291–1326.
Holt, C., & Laury, S. (2002). Risk aversion and incentive effects. American Economic Review, 92(5), 1644–1655.
Horowitz, J. (2006). The Becker-DeGroot-Marschak mechanism is not necessarily incentive compatible, even for non-random goods. Economics Letters, 93(1), 6–11.
Huck, S., & Weizsacker, G. (1999). Risk, complexity, and deviations from expected value maximization. Journal of Economic Psychology, 20, 699–715.
Isaac, M., & James, D. (2000). Just who are you calling risk averse? Journal of Risk and Uncertainty, 20(2), 177–187.
Johnson, C., Montmarquette, C., and Eckel, C. (2003). Fostering adult education: A laboratory experiment on the efficient use of loans, grants, and saving incentives. Social Research and Demonstration Corporation.
Johnson, C., Eckel, C., and Engle-Warnick, J. (2007). An adaptive instrument to elicit risk preferences. Working paper, University of Montreal, 2007.
Kachelmeier, S., & Shehata, M. (1992). Examining risk preferences under high monetary incentives: Experimental evidence from the People's Republic of China. American Economic Review, 82, 1120–1141.
Karni, E., & Safra, Z. (1987). Preference reversal and the observability of preferences by experimental methods. Econometrica, 55(3), 675–685.
Peters, E., Vastfjall, D., Slovic, P., Mertz, C., Mazzocco, K., & Dicker, S. (2006). Numeracy and Decision Making. Psychological Science, 17(5), 407–413.
Slovic, P. (1962). Convergent Validation of Risk Taking Measures. Journal of Abnormal and Social Psychology, 65(1), 68–71.
Starmer, C. (2000). Developments in non-expected utility theory: The hunt for a descriptive theory of choice under risk. Journal of Economic Literature, 38, 332–382.
Statistics Canada and OECD. (2003). Learning a Living: First Results of the Adult Literacy and Life Skills Survey. http://www.statcan.ca/english/freepub/89-603-XIE/2005001/pdf.htm