Context matters

Eliciting the level of risk aversion of experimental subjects is of crucial concern to experimenters. In the literature there are a variety of methods used for such elicitation; the concern of the experiment reported in this paper is to compare them. The methods we investigate are the following: Hol...

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Bibliographic Details
Published inExperimental economics : a journal of the Economic Science Association Vol. 21; no. 4; pp. 723 - 756
Main Authors Zhou, Wenting, Hey, John
Format Journal Article
LanguageEnglish
Published New York Springer US 01.12.2018
Springer Nature B.V
Subjects
Behavioral/Experimental Economics
Economic models
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Elicitation
Expected utility
Experimental methods
Experimental Tools
Game Theory
Methods
Microeconomics
Operations Research/Decision Theory
Research subjects
Risk
Risk aversion
Social and Behav. Sciences
Truth
Utility functions
Experimental methods
Decision making
Experimental design
Preference measures
C91
Risk taking
D81
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Summary:Eliciting the level of risk aversion of experimental subjects is of crucial concern to experimenters. In the literature there are a variety of methods used for such elicitation; the concern of the experiment reported in this paper is to compare them. The methods we investigate are the following: Holt–Laury price lists; pairwise choices, the Becker–DeGroot–Marschak method; allocation questions. Clearly their relative efficiency in measuring risk aversion depends upon the numbers of questions asked; but the method itself may well influence the estimated risk-aversion. While it is impossible to determine a ‘best’ method (as the truth is unknown) we can look at the differences between the different methods. We carried out an experiment in four parts, corresponding to the four different methods, with 96 subjects. In analysing the data our methodology involves fitting preference functionals; we use four, Expected Utility and Rank-Dependent Expected Utility, each combined with either a CRRA or a CARA utility function. Our results show that the inferred level of risk aversion is more sensitive to the elicitation method than to the assumed-true preference functional. Experimenters should worry most about context.
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ISSN:1386-4157
1573-6938
DOI:10.1007/s10683-017-9546-z