This paper reconsiders the wide agreement that females are more risk averse than males. We survey the existing experimental literature, finding that significance and magnitude of gender differences are task specific. We gather data from 54 replications of the Holt and Laury risk elicitation method, involving about 7,000 subjects. Gender differences appear in less than 10% of the studies and are significant but negligible in magnitude once all the data are pooled. Results are confirmed by structural estimations, which also support a constant relative risk aversion representation of preferences. Gender differences correlate with the presence of a safe option and fixed probabilities in the elicitation method. This paper was accepted by John List, behavioral economics.

/pdf/a-reconsideration-of-gender-differences-in-risk-attitudes-apjxo174ig.pdf

A Reconsideration of Gender Differences in Risk Attitudes

This paper reconsiders the wide agreement that females are more risk averse than males providing a leap forward in its understanding. Thoroughly surveying the experimental literature we first find that gender differences are less ubiquitous than usually depicted. Gathering the microdata of an even larger sample of Holt and Laury replications we boost the statistical power of the test and show that the magnitude of gender differences, although significant, is economically unimportant. We conclude that gender differences systematically correlate with the features of the elicitation method used and in particular the availability of a safe option and fixed probabilities.

/pdf/a-reconsideration-of-gender-differences-in-risk-attitudes-5996pghlkk.pdf

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.

https://papers.ssrn.com/sol3/Delivery.cfm/ECOJ_ECOJ12143.pdf?abstractid=2441396&mirid=3

Measuring individual risk attitudes when preferences are imprecise

Wildfires present a complex applied risk management environment, but relatively little attention has been paid to behavioral and cognitive responses to risk among public agency wildfire managers. This study investigates responses to risk, including probability weighting and risk aversion, in a wildfire management context using a survey-based experiment administered to federal wildfire managers. Respondents were presented with a multiattribute lottery-choice experiment where each lottery is defined by three outcome attributes: expenditures for fire suppression, damage to private property, and exposure of firefighters to the risk of aviation-related fatalities. Respondents choose one of two strategies, each of which includes "good" (low cost/low damage) and "bad" (high cost/high damage) outcomes that occur with varying probabilities. The choice task also incorporates an information framing experiment to test whether information about fatality risk to firefighters alters managers' responses to risk. Results suggest that managers exhibit risk aversion and nonlinear probability weighting, which can result in choices that do not minimize expected expenditures, property damage, or firefighter exposure. Information framing tends to result in choices that reduce the risk of aviation fatalities, but exacerbates nonlinear probability weighting.

https://www.fs.fed.us/rm/pubs_journals/2015/rmrs_2015_hand_m001.pdf

Risk Preferences, Probability Weighting, and Strategy Tradeoffs in Wildfire Management

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 (Am Econ Rev 92(5):1644–1655, 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 HL 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. (Theory Decis 71:63–80, 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 HL one may be preferable for the measurement of risk aversion.

/pdf/measuring-risk-aversion-with-lists-a-new-bias-4azkukddy2.pdf

Measuring risk aversion with lists: a new bias

We present a new experimental evidence of how framing affects decisions in the context of a lottery choice experiment for measuring risk aversion. We investigate framing effects by replicating the Holt and Laury's (Am. Econ. Rev. 92:1644-1655, 2002) procedure for measuring risk aversion under various frames. We first examine treatments where participants are confronted with the 10 decisions to be made either simultaneously or sequentially. The second treatment variable is the order of appearance of the ten lottery pairs. Probabilities of winning are ranked either in increasing, decreasing, or in random order. Lastly, payoffs were increased by a factor of ten in additional treatments. The rate of inconsistencies was significantly higher in sequential than in simultaneous treatment, in increasing and random than in decreasing treatment. Both experience and salient incentives induce a dramatic decrease in inconsistent behaviors. On the other hand, risk aversion was significantly higher in sequential than in simultaneous treatment, in decreasing and random than in increasing treatment, in high than in low payoff condition. These findings suggest that subjects use available information which has no value for normative theories, like throwing a glance at the whole connected set of pairwise choices before making each decision in a connected set of lottery pairs.

Risk aversion and framing effects

We here estimate a number of alternatives to discounted-utility theory, such as quasi-hyperbolic discounting, generalized hyperbolic discounting, and rank-dependent discounted utility with three different models of probabilistic choice. The data come from a controlled laboratory experiment designed to reveal individual time preferences in two rounds of 100 binary-choice problems. Rank-dependent discounted utility and its special case—the maximization of present discounted value—turn out to be the best-fitting theory (for about two-thirds of all subjects). For a great majority of subjects (72%), the representation of time preferences in Luce’s choice model provides the best fit.

Estimating representations of time preferences and models of probabilistic intertemporal choice on experimental data

Estimating Representations of Time Preferences and Models of Probabilistic Intertemporal Choice on Experimental Data

Conventional economic theory assumes that agents should be consistent across decisions. However, it is often observed that experimental subjects fail to report consistent preferences. So far, these inconsistencies are almost always examined singly. We thus wonder whether the more inconsistent individuals in one task are also more inconsistent in other tasks. We propose an experiment in which subjects are asked to report their preferences over risky bets so as to obtain, for each subject, three measures of inconsistencies: classical preference reversals, framing effects and preference instability. In line with previous experimental findings, subjects are largely inconsistent according to each of these three measures and there are considerable individual differences. The main result is that we find no correlation among these three measures of inconsistency.

Consistent inconsistencies? Evidence from decision under risk

Discounted utility theory and its generalizations (e.g., quasihyperbolic discounting, generalized hyperbolic discounting) use discount functions for weighting utilities of outcomes received in different time periods. We propose a new simple test of convexity–concavity of discount function. This test can be used with any utility function (which can be linear or not) and any preferences over risky lotteries (expected utility theory or not). The data from a controlled laboratory experiment show that about one third of experimental subjects reveal a concave discount function and another one third of subjects reveal a convex discount function (for delays up to two month).

Hela Maafi

Papers

Risk aversion and framing effects

Estimating representations of time preferences and models of probabilistic intertemporal choice on experimental data

Estimating Representations of Time Preferences and Models of Probabilistic Intertemporal Choice on Experimental Data

Consistent inconsistencies? Evidence from decision under risk

A new test of convexity–concavity of discount function