Attitude towards risk (original) (raw)
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Journal of Experimental Psychology, 1969
On each of 100 trials, 75 5"s chose and played one of five alternative gambles having positive equal expected values. Depending on the experimental condition, the winning probability level of each alternative was either .2, .5, or .8. Results showed that when the winning probability level of each alternative was increased from .2 to .8, 5s preferred relatively more risky alternatives as measured by the relative variance of chosen alternatives. These differences occurred although 6"s averaged the same net profit across trials. Whereas the effect was not apparent on the first block of 10 trials, it became increasingly marked in succeeding blocks, being strongest for P(win) = .8. The effect was attributed to the relative and absolute frequency of winning.
The Role of Risk Attitudes in Probabilistic Environments
2013
In this work we asked if risk attitudes influence the way agents learn in a probabilistic environment. For that purpose, 31 male students played a version of a well-known game called the multi-armed bandit (with four levers/buttons). We found that after controlling for cognitive abilities (i.e. Raven’s test), risk seekers in gains preferred to explore in this environment, rather than exploit options, even if one of them was clearly more rewarding. We briefly discuss the reasons and some implications for financial decision theories, in particular, for Bayesian and behavioral proposals.
Empirical investigation of some properties of the perceived riskiness of gambles
Organizational Behavior and Human Decision Processes, 1986
Empirical tests of some properties of the perceived riskiness of gambles are reported. In experiments conducted with U.S. and German subjects, we observed a remarkable consistency in risk judgments. Four possible measures of risk, derived by R. Duncan Lute, were examined. We found that risk decreases as a constant amount is added to all outcomes of a gamble. ?ivo of Lute's measures require that risk not change with the addition of a constant, and thus these measures are not appropriate for describing perceived risk. We also found that Lute's logarithmic measure is not empirically valid. Lute's fourth measure (the expectation of the absolute value of the outcomes raised to a parameter 0) seems to have more promise than his other three measures. These results provide some necessary conditions that a new theory or extension of Lute's measures must satisfy. 0 1986 Academic Press, Inc. We thank the referees for their suggestions and Joao Becker for his assistance in carrying out statistical tests.
2011
In this paper we examine how risk attitudes change with age. We present participants from age 5 to 64 with choices between simple gambles and the expected value of the gambles. The gambles are over both gains and losses, and vary in the probability of the non-zero payoff. Surprisingly, we find that many participants are risk seeking when faced with high-probability prospects over gains and risk averse when faced with small-probability prospects. Over losses we find the exact opposite. Children’s choices are consistent with the underweighting of low-probability events and the overweighting of high-probability ones. This tendency diminishes with age, and on average adults appear to use the objective probability when evaluating risky prospects. Keywords: probability weighting, subjective expected utility, prospect theory, children, risk
Selected Factors Affecting Decisions Undertaken under Risky Circumstances
The Central European Review of Economics and Management, 2015
When making decisions about voluntary insurance or about taking part in a lottery, people should consider possible states of nature and a probability of their occurrence. Classical economics assumes that decisions of people acting in risky circumstances are compliant with the expected utility hypothesis. However theories based on human behaviour (in particular the cumulative prospect theory) claim that the process of decision making involves anomalies resulting from perception of reality e.g. the sign effect, peanuts effect and others. The paper aims to verify the impact of selected factors on decisions made by people in circumstances of profits and losses. This aim was achieved by means of consecutive experiments carried out. Factors like the amount of win/loss, the probability of winning/losing were examined on the sample of over 600 people and decisions taken by them. The results indicate that assumptions made by classical economics are not always met. In the experiments conducted, the attitude towards risks was affected by the amount of bet (with lower values there was a tendency to act safely), the probability of winning, a reference point and whether results of gaming were described as profits or losses.
Risk Attitudes of Children and Adults: Choices Over Small and Large Probability Gains and Losses
Experimental Economics, 2002
In this paper we examine how risk attitudes change with age. We present participants from age 5 to 64 with choices between simple gambles and the expected value of the gambles. The gambles are over both gains and losses, and vary in the probability of the non-zero payoff. Surprisingly, we find that many participants are risk seeking when faced with high-probability prospects over gains and risk averse when faced with small-probability prospects. Over losses we find the exact opposite. Children's choices are consistent with the underweighting of low-probability events and the overweighting of high-probability ones. This tendency diminishes with age, and on average adults appear to use the objective probability when evaluating risky prospects.
Risk Attitude in Real Decision Problems
The B.E. Journal of Economic Analysis & Policy, 2008
We use data from 298 showings of the television program "Affari Tuoi," which involves contestants making decisions between risky prospects with possible prizes of up to half a million euros, to estimate three models of decision-making under risk: Expected Utility, Rank-Dependent Expected Utility and Regret-Rejoice. We find that Regret-Rejoice does not significantly improve upon Expected Utility, while Rank-Dependent outperforms it. Interestingly, we find that the CARA specification fits significantly better than the conventionally-adopted CRRA specification. Crucially, we find a significant role for unobserved heterogeneity, implying that our estimates provide more superior estimates of risk attitude and of probability weighting than other studies.
The Fourfold Pattern of Risk Attitudes in Choice and Pricing Tasks*
The Economic Journal, 2009
Using simple gambles with real payoffs we examine the robustness of the fourfold pattern (FFP) of risk attitudes under two different elicitation procedures. That is, we determine if on average individuals are (1) risk-seeking over low-probability gains, (2) risk-averse over high-probability gains, (3) riskaverse over low-probability losses, and (4) risk-seeking over high-probability losses. We find that participants' risk attitudes are consistent with the FFP when using the Becker-DeGroot-Marschak procedure to elicit prices for the gambles. However, when instead relying on a simple choice-based elicitation where participants choose between the gamble and its expected value, individual decisions are not distinguishable from random choice. This sensitivity to the elicitation procedure holds both between-and within-participants, and it remains even when participants review their price and choice decisions simultaneously and are allowed to change them. Given the greater complexity of the price elicitation procedure this finding may be further evidence that an increase in cognitive load exacerbates behavioral anomalies.