Essays on Risk and Uncertainty Preferences

Abstract

This dissertation sheds a light on risk and ambiguity preferences from different perspectives. Chapter 2 introduces the methods used to investigate risk and ambiguity preferences. Chapter 3 analyzes the stability of ambiguity preferences experimentally, by repeatedly eliciting ambiguity attitudes towards multiple 3-color Ellsberg urns over a period of two months. In the data, 57% of the choices are consistent with stable preferences over the time of observation. This share is significantly higher than random choices would suggest, but significantly lower than the level of consistency in a control treatment without a time lag (71%). Interestingly, for subjects who are able to recall their decision after two months correctly, the share of consistent choices does not drop significantly over time. \nRecent studies have found correlations between risk attitudes and several sociodemographic characteristics. Chapter 4 deploys an artefactual field experiment to study whether financial professionals and non-professionals are aware of these correlations. The data shows that the subjects are largely able to predict the relationship between demographics and risk attitudes. However, less experienced professionals are significantly more successful in predicting these correlations than senior professionals. \nChapter 5 analyzes the prediction of risk preferences of others using an artefactual field experiment with financial professionals and students. For their prediction, the subjects receive information on multiple demographic characteristics and a self-assessment of risk taking of the target. When analyzing the predictions there are three significant effects: Subjects use the demographic information for stereotyping as well as the target's self-assessment on risk taking, and there is a considerable false consensus effect. The false consensus effect is the strongest for experienced professionals. Regarding the prediction's accuracy, the forecasts of the professionals are more accurate than the forecasts of the students. \nChapter 6 investigates the effect of social distance on the prediction of risk preferences. As many risky decisions are delegated to professionals, such as financial advisors or doctors. Personal interaction is a common element in such counseling interviews, but also costly for both parties. In times of technological change, it is of interest whether a personal meeting helps to improve the quality of advice. Chapter 5 investigates the assessment of risk preferences of others under two conditions: either the subjects meet personally or make their assessment based only on demographic information. By employing a within-subject design, investigate the prediction accuracy of risk preferences is investigated under both conditions. The results indicate that personal interaction is not a major advantage when assessing the risk preferences of others. Prediction errors remain similar.

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