Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/242781
Authors: 
Holden, Stein T.
Tilahun, Mesfin
Year of Publication: 
2020
Series/Report no.: 
Centre for Land Tenure Studies Working Paper No. 01/20
Publisher: 
Norwegian University of Life Sciences (NMBU), Centre for Land Tenure Studies (CLTS), Ås
Abstract: 
The risky investment game of Gneezy and Potters (1997) has been a popular tool used to estimate risk tolerance and myopic loss aversion. We have assessed whether a simple one-shot version of this game that is attractive as a simple tool to elicit risk tolerance among respondents with limited education, can lead to biased estimates of risk aversion due to endowment effects. We use a field experiment with a pool of young business group members with limited education to test for the potential bias associated with the initial endowment allocation. We find a highly significant endowment effect which may explain low investment levels and exaggerated measures of risk aversion where this game has been used to estimate risk aversion. We develop and test a more balanced version of the risk investment game and demonstrate that it gives less bias due to endowment effects than the standard design and a full risk design that creates an endowment effect in the opposite direction, indicating that loss aversion may not be the primary cause of the endowment effect.
Subjects: 
Endowment effect
loss aversion
gender difference
risky investment game
field experiment
Ethiopia
JEL: 
C93
D91
ISBN: 
978-82-7490-284-8
Document Type: 
Working Paper

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