Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79675
Authors: 
Bosch-DomŠnech, Antoni
Silvestre, Joaquim
Year of Publication: 
2012
Series/Report no.: 
Working Papers, University of California, Department of Economics 12-23
Abstract: 
Various experimental procedures aimed at measuring individual risk aversion involve a list of pairs of alternative prospects. We first study the widely used method by Holt and Laury (2002), for which we find that the removal of some items from the lists yields a systematic decrease in risk aversion and scrambles the ranking of individuals by risk aversion. This bias, that we call embedding bias, is quite distinct from other confounds that have been previously observed in the use of the Holt and Laury method. It may be related to empirical phenomena and theoretical developments where better prospects increase risk aversion. Nevertheless, we also find that the more recent elicitation method due to Abdellaoui et al. (2011), also based on lists but using only one and the same probability in the list, does not display any statistically significant bias when the corresponding items of the list are removed. Our results suggest that methods other than the popular Holt and Laury one may be preferable for the measurement of risk aversion.
Subjects: 
risk aversion
risk attitudes
experiments
lists
elicitation method
Holt
Laury
Abdellaoui
Driouchi
l'Haridon
independence axiom
probability weighting
JEL: 
C91
Document Type: 
Working Paper

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