Risk breeds risk aversion

We examine whether exposure to a more or less risky environment affects people’s subsequent risk-taking behavior. In a laboratory setting, all subjects went through twelve rounds of multiple-price-list decisions between a risky alternative and a safe alternative. In the first six rounds, subjects we...

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Bibliographic Details
Published inExperimental economics : a journal of the Economic Science Association Vol. 21; no. 4; pp. 815 - 835
Main Authors He, Tai-Sen, Hong, Fuhai
Format Journal Article
LanguageEnglish
Published New York Springer US 01.12.2018
Springer Nature B.V
Subjects
Behavioral/Experimental Economics
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Game Theory
Lotteries
Microeconomics
Operations Research/Decision Theory
Original Paper
Risk
Risk aversion
Risk behavior
Risk taking
Social and Behav. Sciences
Risk aversion
Risk
C91
Laboratory experiment
D81
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Summary:We examine whether exposure to a more or less risky environment affects people’s subsequent risk-taking behavior. In a laboratory setting, all subjects went through twelve rounds of multiple-price-list decisions between a risky alternative and a safe alternative. In the first six rounds, subjects were randomly assigned to a high-, moderate-, or low-risk environment, which differed in the variances of the lotteries they were exposed to. In the last six rounds, subjects in all treatments made decisions on an identical set of lotteries. We found that subjects who had experienced a riskier environment exhibited a higher degree of risk aversion. Our experimental design allows us to conclude that this effect is driven by the risk environment per se, rather than the realized outcomes of the risk. This finding has important theoretical and policy implications.
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ISSN:1386-4157
1573-6938
DOI:10.1007/s10683-017-9553-0