Measuring Individual Risk Attitudes when Preferences are Imprecise

Graham Loomes · Ganna Pogrebna

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Decision-Making and Behavioral Economics Economic and Environmental Valuation Experimental Behavioral Economics Studies

Abstract

There is widespread interest in measuring risk attitudes and incorporating such measures into broader econometric analyses. We consider three elicitation procedures currently in use. We find considerable variability within – and even more, between – the results they produce. We suggest that this reflects the way that different instruments interact with imprecise underlying preferences. The short‐run implication is that such procedures need to be used with caution and are likely to be highly context‐specific. The longer run implication is that adding ‘white noise’ to deterministic models is inadequate: we need to develop models that allow for imprecision and procedural variation.

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References

1979Prospect Theory: An Analysis of Decision under Risk 1988Prospect theory: An analysis of decision under risk 1992Advances in prospect theory: Cumulative representation of uncertainty 2002Risk Aversion and Incentive Effects 2013Choices, Values, and Frames 2000Choices, Values, and Frames 1993Decision field theory: A dynamic-cognitive approach to decision making in an uncertain environment.2011Strong Evidence for Gender Differences in Risk Taking

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