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Title:Relating the two dimensions of risk attitudes: an experimental analysis PDF Logo
Authors:Qiu, Jianying
Steiger, Eva-Maria
Issue Date:2009
Series/Report no.:Jena economic research papers 2009,006
Abstract:In the framework of expected utility theory, risk attitudes are entirely captured by the curvature of the utility function. In cumulative prospect theory (CPT) risk attitudes have an additional dimension: the weighting of probabilities. With this modification, one question arises naturally: since both utility and probability weight-ing determine the attitude towards risk, what is the relation between them? We ran a controlled laboratory experiment to answer this question. Our findings suggest that the two dimensions capture different characteristics of individual risk attitude. Though individuals who are risk averse in one dimension are likely to be risk averse in the other, the two dimensions show no significant correlation. Moreover, a significant proportion of subjects are risk averse in one dimension but risk seeking in the other.
Subjects:Risk attitudes
cumulative prospect theory
experimental study
JEL:C91
D81
Document Type:Working Paper
Appears in Collections:Jena Economic Research Papers, MPI für Ökonomik

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