Risk aversion in experiments

sdarticle.pdf......Page 1
sdarticle_001.pdf......Page 2
sdarticle_002.pdf......Page 3
List of contributors......Page 4
Risk aversion in experiments: an introduction......Page 5
References......Page 11
Introduction......Page 12
Representative theories of decision under risk......Page 14
Unbounded Money Transformation Functions......Page 18
Bounded Money Transformation Functions......Page 21
Does the Original St. Petersburg Paradox have Empirical Relevancequest......Page 23
Does the Generalized St. Petersburg Paradox have Empirical Relevancequest......Page 24
A Real Experiment with a Finite St. Petersburg Game......Page 27
Plausibility Checks on Empirical Findings with St. Petersburg Games......Page 28
Plausibility Checks on Empirical Findings with Binary Lotteries......Page 29
Do Concavity Calibrations of Payoff Transformation (or Utility) Functions have Empirical Relevancequest......Page 32
Do Convexity Calibrations of Probability Transformation Functions have Empirical Relevancequest......Page 33
Is the Expected Utility of Terminal Wealth Model More (or Less) Vulnerable to Calibration Critique than Other Theoriesquest......Page 34
Decision Theories on Unbounded Domain have Implausible Implications......Page 36
Implications for Theory and its Applications on Bounded Domains......Page 37
Notes......Page 39
References......Page 40
Risk Aversion in the Laboratory......Page 44
Elicitation procedures......Page 47
The Multiple Price List Design......Page 48
The Random Lottery Pair Design......Page 53
The Ordered Lottery Selection Design......Page 55
The Becker-DeGroot-Marschak Design......Page 59
The Trade-Off Design......Page 60
Miscellaneous Designs......Page 61
Estimation procedures......Page 64
Inferring Bounds......Page 65
Structural Estimation......Page 72
Stochastic Errors......Page 77
Non-Parametric Estimation......Page 81
Comparing Procedures......Page 82
Comparing Treatments......Page 87
Extensions and further applications......Page 88
Characterizing Risk Attitudes with Probability Weighting and Rank-Dependent Utility......Page 89
Original Prospect Theory......Page 93
Cumulative Prospect Theory......Page 94
The Reference Point and Loss Aversion......Page 98
Characterizing Risk Attitudes with Several Latent Data Generating Processes......Page 101
Joint Elicitation of Risk Attitudes and Other Preferences......Page 103
Testing Expected Utility Theory......Page 105
Testing Auction Theory......Page 110
Experimental Design and Procedures......Page 111
Results......Page 112
Testing Myopic Loss Aversion......Page 114
The Random Lottery Incentive Procedure......Page 119
Summary Estimates......Page 122
Hypothetical Bias......Page 126
Sample Selection......Page 127
Extending Lab Procedures to the Field......Page 130
Conclusion......Page 133
Notes......Page 134
Acknowledgment......Page 148
References......Page 149
Appendix A. Representation and perception of probabilities......Page 159
Replication......Page 166
Explaining the Data......Page 168
Modeling Behavior......Page 172
Appendix D. The experiments of Kachelmeier and Shehata (1992)......Page 173
Appendix E. The experiments of Gneezy and Potters (1997)......Page 176
Explaining the Data......Page 179
Modeling Behavior......Page 181
Coals To Newcastle: An Anomaly for the Behaviorists......Page 184
Estimating a CRRA Utility Function......Page 187
Loss Aversion and Probability Weighting......Page 192
Adding Stochastic Errors......Page 195
Non-Parametric Estimation of the EUT Model......Page 196
Replication of Holt and Laury (2002)......Page 198
Extensions......Page 199
Stochastic models for binary discrete choice under risk: a critical primer and econometric comparison......Page 200
Notation and Definitions......Page 205
The Two Structures......Page 206
Common Ratio Sets......Page 208
MPS Pairs on a Specific Three-Outcome Context......Page 209
Context Shifts and Parametric Utility Functions......Page 210
Other Structural Properties......Page 211
Betweenness......Page 212
Transitivity, Stochastic Transitivities, and Simple Scalability......Page 213
Trembles......Page 215
The Random Preference Model......Page 216
The Strong Utility and Strict Utility Models: The Fechnerian and ‘‘Luce’’ Models......Page 219
Moderate Utility I: The Wandering Vector Model......Page 222
Moderate Utility II: Contextual Utility......Page 224
Other Models......Page 226
The ambiguity of average treatment effects: a common ratio illustration......Page 227
Strong Utility and Contextual Utility......Page 228
Strict Utility......Page 233
Properties of the stochastic models combined with the structures......Page 234
Random Preferences and the Wandering Vector Model......Page 235
Strict, Strong, and Contextual Utility......Page 237
Stochastic Models are Consequential: An Illustration Using Hey’s (2001) Spread Triples......Page 238
Transparent Dominance Violations as Tremble Events......Page 243
Nontransparent Dominance Violations......Page 245
Are FOSD Pairs Hydrogen or Hassiumquest......Page 246
Context shifts and Parametric Utility Functions......Page 247
Random Preferences, Strict Utility, and Contextual Utility......Page 248
Strong Utility and the Wandering Vector Model......Page 249
Patterns of Risk Aversion Across Contexts: Stochastic Models Versus Structure......Page 250
Simple Scalability......Page 252
Generalizability and Tractability: The Special Problem of Random Preferences......Page 255
Summary of Stochastic Model Properties......Page 259
An overall econometric comparison of the stochastic models......Page 261
The Data and its Special Features......Page 263
Two Kinds of Comparisons: In-Sample Versus Out-of-Sample Fit......Page 264
Choosing an Approach to the Utility of Money......Page 265
Allowing for Heterogeneity......Page 266
General Framework for Random Parameters Estimation......Page 268
The Random Parameters Approach for EU with Strong Utility: An Illustration......Page 269
A Comparison of the Specifications......Page 274
Conclusions: a blunt personal view......Page 278
Notes......Page 280
References......Page 283
Measuring risk aversion and the wealth effect......Page 296
Introduction......Page 297
Theoretical considerations......Page 299
Analyzing individual data from the experiment by Holt and Laury......Page 301
Estimating a hybrid utility function......Page 309
Conclusion and outlook on future research......Page 311
Notes......Page 314
References......Page 315
Risk aversion in the presence of background risk: Evidence from an economic experiment......Page 317
Risk vulnerability......Page 319
Experimental procedures......Page 320
Analysis and results......Page 322
Conclusion......Page 333
Notes......Page 335
References......Page 336
Beginning Instructions - Common to All Three Treatments......Page 337
Instructions for the No-Background Risk Treatment......Page 338
Instructions for Mean-Zero Background Risk Treatment......Page 339
Instructions for Unfair Background Risk Treatment......Page 340
Introduction......Page 343
Experimental design......Page 345
Findings......Page 348
Risk-neutral Pricing and Observed Pricing......Page 349
Prices and Betas......Page 352
Sharpe Ratios......Page 354
CAPM......Page 355
Conclusion......Page 357
Notes......Page 358
References......Page 359
Risk aversion in game shows......Page 361
Card Sharks......Page 362
Estimates of Risk Attitudes......Page 365
EUT Anomalies......Page 367
Jeopardyexcl......Page 369
Lingo......Page 370
The Game Show as a Natural Experiment......Page 374
Comparable Laboratory Experiments......Page 378
Other Analyses of Deal or No Deal......Page 382
A general estimation strategy......Page 383
Basic Intuition......Page 384
Formal Specification......Page 387
Estimates from Behavior on the Game Show......Page 391
Approximation to the Fully Dynamic Path......Page 394
Conclusions......Page 397
Notes......Page 400
References......Page 403
Further reflections on the reflection effect......Page 407
Introduction......Page 408
Lottery choice design and theoretical predictions......Page 412
Prospect Theory......Page 413
Procedures......Page 415
Results from low-payoff sessions......Page 417
Results from high-payoff sessions......Page 421
Maximum-likelihood estimation......Page 427
Conclusion......Page 431
Notes......Page 432
References......Page 435
Initial Instructions for Hypothetical Payment Sessions......Page 437
Instructions......Page 438