Since Holt and Laury (Am Econ Rev 92(5):1644–1655, 2002), the multiple price list (MPL) procedure has widely been used to elicit individual risk preferences. We assess the impact of varying list order and spacing, and of presentation via text or graphs. Relative to the original MPL baseline, some non-linear transformations of lottery prices systematically increase elicited risk aversion, while some graphical displays tend to reduce it.

I find necessary and sufficient conditions for first-order stochastic dominance (FOSD) violations for choices from a budget line of Arrow securities. Applying this characterization to existing data, I compare FOSD violation rates across a broad set of risk preference elicitation tasks.

What is the relationship between short-run fluctuations in economic activity and the long-run evolution of the economy? There is empirical evidence that more perturbed economies tend to grow less. Yet matching this evidence has proven challenging for growth models without market failures. This paper examines the relationship between short-term fluctuations and long-term growth within a complete-market economy featuring Epstein-Zin preferences and unbounded growth driven by human and physical capital accumulation. With these preferences, risk aversion and intertemporal elasticity of substitution are allowed to be independent of each other. When the model is plausibly calibrated, the relationship between the mean and variance of growth turns out to be negative. In most cases, the effect of fluctuations on welfare is found to be negative and sizable, even when the long-run effect on growth is positive.

There are some connections between aging notions, stochastic orders, and expected utilities. It is known that the DRHR (decreasing reversed hazard rate) aging notion can be characterized via the comparative statics result of risk aversion, and that the location-independent riskier order preserves monotonicity between risk premium and the Arrow–Pratt measure of risk aversion, and that the dispersive order preserves this monotonicity for the larger class of increasing utilities. Here, the aging notions ILR (increasing likelihood ratio), IFR (increasing failure rate), IGLR (increasing generalized likelihood ratio), and IGFR (increasing generalized failure rate) are characterized in terms of expected utilities. Based on these observations, we recover the closure properties of ILR, IFR, and DRHR under convolution, and of IGLR and IGFR under product, and investigate the closure properties of the dispersive order, location-independent riskier order, excess wealth order, the total time on test transform order under convolution, and the star order under product. We have some new findings.

Faced with risky yields and returns, risk-averse farmers require a premium to take risks. In this paper, we estimate individual farmers’ degrees of risk aversion to adjust for the risk premium in returns and to replace the farmers’ realized returns with their certainty equivalent returns in the production function. In that way, the effect of the inputs on returns will automatically be risk-adjusted, i.e., we obtain risk-adjusted marginal effects of inputs, which can be used in decision-making support of farmers’ input choices in production. Using farm-level data from organic basmati rice smallholders in India, we illustrate this method using nonparametric production functions. The results show that the input elasticities and returns-to-scale estimates change when the farmers’ degree of risk aversion is taken into consideration.

Time preferences may explain public opinion about a wide range of long-term policy problems with costs and benefits realized in the distant future. However, mass publics may discount these costs and benefits because they are later or because they are more uncertain. Standard methods to elicit individual-level time preferences tend to conflate risk and time attitudes and are susceptible to social desirability bias. A potential solution relies on a costly lab-experimental method, convex time budgets (CTB). We present and experimentally validate an affordable version of this approach for implementation in mass surveys. We find that the theoretically preferred CTB patience measure predicts attitudes toward a local, delayed investment problem but fails to predict support for more complex, future-oriented policies.

The generalized risk-adjusted cost-effectiveness (GRACE) analysis method modifies standard cost-effectiveness analysis (CEA), the primary method currently used worldwide to value health improvements arising from healthcare interventions. Generalizing standard CEA, GRACE allows for decreasing or even increasing returns to health. Previous presentations of GRACE have relied extensively on Taylor Series expansion methods to specify key model parameters, including those that properly adjust for illness severity and preexisting disability, consequences of uncertain treatment outcomes, and the marginal rate of substitution between life expectancy and health-related quality of life. Standard CEA cannot account for these sources of value or cost in its valuation of medical treatments. However, calculations of GRACE measures based on Taylor Series are approximations, which may be poorly behaved in some contexts. This paper provides a new approach for implementing GRACE, using exact utility functions instead of Taylor Series approximations. While any proper utility function will suffice, we illustrate with three well-known functions: constant relative risk aversion (CRRA) utility; hyperbolic absolute risk aversion (HARA) utility, of which CRRA is a special case; and expo-power (EP) utility, of which constant absolute risk aversion (CARA) is a special case. The analysis then extends from two-period to multiperiod models. We discuss methods to estimate parameters of HARA and EP functions using two different types of data, one from discrete choice experiments and the other from “happiness economics” methods. We conclude with some reflections on how this analysis might affect benefit-cost analysis studies of healthcare interventions.

Prior research on self-other differences involving risk have found that individuals make riskier decisions for others than for the self in situations where risk taking is valued. We expand this research by examining whether the direction of self-other differences reverses when risk aversion is valued, as predicted by social values theory (Stone & Allgaier, 2008). Two studies tested for self-other differences in physical safety scenarios, a domain where risk aversion is valued. In Study 1, participants read physical safety and romantic relationship scenarios and selected what they would decide for themselves, what they would decide for a friend, or what they would predict their friend would decide. In Study 2, participants read public health scenarios and either decided or predicted for themselves and for a friend. In keeping with social values theory, participants made more risk-averse decisions for others than for themselves in situations where risk aversion is valued (physical safety scenarios) but more risk-taking decisions for others than for themselves in situations where risk taking is valued (relationship scenarios). Further, we show that these self-other differences in decision making do not arise from incorrectly predicting others’ behaviors, as participants predicted that others’ decisions regarding physical safety scenarios would be either similar (Experiment 1) or more risk taking (Experiment 2) than their own decisions.

The objective of this paper is to measure and compare the subjective time discounting of professional athletes and non-athletes. By using a questionnaire, we found higher subjective discounting for professional athletes than for non-athletes. We also found that the professional athletes’ win-orientation positively affected their present preferences. On the other hand, professional athletes’ play- orientation, which reflects their attitude towards the game itself, negatively affected their present preferences. No such effects were found in non-athletes. We argue that the “win-at-all-costs” competitive approach that leads athletes to sacrifice everything in order to win may cause (or reflect) their higher preference for the present.

This article presents several studies that replicate and extend previous research on maximizing. A modified scale for measuring individual maximizing tendency is introduced. The scale has adequate psychometric properties and reflects maximizers’ aspirations for high standards and their preference for extensive alternative search, but not the decision difficulty aspect included in several previous studies. Based on this scale, maximizing is positively correlated with optimism, need for cognition, desire for consistency, risk aversion, intrinsic motivation, self-efficacy and perceived workload, whereas the association with regret is inconsistent. Analysis of correlates of the difficulty dimension suggests that decision difficulty should be conceptualized as a separate dimension rather than as a sub-dimension of maximizing. Opportunities for future research are suggested.

We analyze the impact of acute stress on risky choice in a pre-registered laboratory experiment with 194 participants. We test the causal impact of stress on the stability of risk preferences by separating noise in decision-making from an actual shift in preferences. We find no significant differences in risk attitudes across conditions on the aggregate, using both descriptive analyses as well as structural estimations for risk aversion and different noise structures. Additionally, in line with the previous literature, we find statistically significant evidence for lower cognitive abilities being correlated with more noise in decision-making in general. We do not find a significant interaction effect between cognitive abilities and stress on noise levels.

Ambiguity aversion has been widely observed in individuals’ judgments. Using scenarios that are typical in decision analysis, we investigate ambiguity aversion for pairs of individuals. We examine risky and cautious shifts from individuals’ original judgments to their judgments when they are paired up in dyads.

In our experiment the participants were first asked to specify individually their willingness-to-pay for six monetary gambles. They were then paired at random into dyads, and were asked to specify their willingness-to-pay amount for the same gambles. The dyad’s willingness-to-pay amount was to be shared equally by the two individuals. Of the six gambles in our experiment, one involved no ambiguity and the remaining five involved different degrees of ambiguity. We found that dyads exhibited risk aversion as well as ambiguity aversion. The majority of the dyads exhibited a cautious shift in the face of ambiguity, stating a smaller willingness-to-pay than the two individuals’ average. Our study thus confirms the persistence of ambiguity aversion in a group setting and demonstrates the predominance of cautious shifts for dyads.

The St. Petersburg Paradox is a famous economic and philosophical puzzle that has generated numerous conflicting explanations. To shed empirical light on this phenomenon, we examined subjects’ bids for one St. Petersburg gamble with a real monetary payment. We found that bids were typically lower than twice the smallest payoff, and thus much lower than is generally supposed. We also examined bids offered for several hypothetical variants of the St. Petersburg Paradox. We found that bids were weakly affected by truncating the gamble, were strongly affected by repeats of the gamble, and depended linearly on the initial “seed” value of the gamble. One explanation, which we call the median heuristic, strongly predicts these data. Subjects following this strategy evaluate a gamble as if they were taking the median rather than the mean of the payoff distribution. Finally, we argue that the distribution of outcomes embodied in the St. Petersburg paradox is so divergent from the Gaussian form that the statistical mean is a poor estimator of expected value, so that the expected value of the St. Petersburg gamble is undefined. These results suggest that this classic paradox has a straightforward explanation rooted in the use of a statistical heuristic.

Are highly intelligent people less risk averse? Over the last two decades scholars have argued the existence of a negative relationship between cognitive ability and risk aversion. Although numerous studies support this, the link between cognitive ability and risk aversion has not been found consistently. To shed new light on this topic, a systematic review and meta-analysis was conducted. A total of 97 studies were identified and included for meta-analysis in the domain of gains (N=90, 723), 41 in the mixed domain (N=50, 936), and 12 in the domain of losses (N=4, 544). Results indicate that there exists a weak, but significant negative relationship between cognitive ability and risk aversion in the domain of gains. However, no relationship was observed in the mixed domain or in the domain of losses. Several meta-regressions were performed to investigate the influence of moderator variables. None of the moderator variables were found to consistently influence the relationship between cognitive ability and risk aversion across the domain of gains, mixed and losses. Moreover, no significant difference was observed between males and females across all three domains. In conclusion, this systematic review and meta-analysis provides new evidence that the relationship between cognitive ability and risk aversion is domain specific and not as strong as suggested by some previous studies.

We explore different contexts and mechanisms that might promote or alleviate the gender effect in risk aversion. Our main result is that we do not find gender differences in risk aversion when the choice is framed as a willingness-to-accept (WTA) task. When the choice is framed as a willingness-to-pay (WTP) task, men are willing to pay more and thus exhibit lower risk aversion. However, when the choice is framed as a willingness to accept task, women will not accept less than men. These findings imply gender differences in the endowment effect. We also find that the effect size of the gender difference in risk aversion is reduced or eliminated as the context changes from tasks framed as gambles to other domains; and that attitudes toward gambling mediate the gender effect in gambling framed tasks.

We report a preliminary study that compared decisions made in an oxygen depleted environment with those made in a normoxic environment. Participants were presented with a series of choices that involved either losses or gains. For each choice they were forced to choose between a sure thing and a gamble of the same expected value. For choices involving losses, participants were more risk seeking in the oxygen depleted environment; for those involving gains, no difference was found.

In lottery gambling, the common phenomenon of risk aversion shows up as preference of the option with the higher win probability, even if a riskier alternative offers a greater expected value. Because riskier choices would optimize profitability in such cases, the present study investigates the visual format, with which lotteries are conveyed, as potential instrument to modulate risk attitudes. Previous research has shown that enhanced attention to graphical compared to numerical probabilities can increase risk aversion, but evidence for the reverse effect — reduced risk aversion through a graphical display of outcomes — is sparse. We conducted three experiments, in which participants repeatedly selected one of two lotteries. Probabilities and outcomes were either presented numerically or in a graphical format that consisted of pie charts (Experiment 1) or icon arrays (Experiment 2 and 3). Further, expected values were either higher in the safer or in the riskier lottery, or they did not differ between the options. Despite a marked risk aversion in all experiments, our results show that presenting outcomes as graphs can reduce — albeit not eliminate — risk aversion (Experiment 3). Yet, not all formats prove suitable, and non-intuitive outcome graphs can even enhance risk aversion (Experiment 1). Joint analyses of choice proportions and response times (RTs) further uncovered that risk aversion leads to safe choices particularly in fast decisions. This pattern is expressed under graphical probabilities, whereas graphical outcomes can weaken the rapid dominance of risk aversion and the variability over RTs (Experiment 1 and 2). Together, our findings demonstrate the relevance of information format for risky decisions.

Recent studies have identified the uncertainty effect (UE), whereby risky prospects (e.g., a binary lottery that offers either a $50 or $100 gift certificate) are valued less than their worst possible outcome (a $50 certificate). This effect has been proposed to result from “direct risk-aversion” which posits that the mere uncertainty of a lottery directly decreases its value. However, this effect may also be driven by the potential disappointment inherent in not receiving the better of the two outcomes (disappointment aversion), or the mere fact that the risky prospect is referred to as a “lottery”. The results of two experiments do not support either of these two alternatives. Specifically, the results of Experiment 1 indicate that the UE is observed even when the values of the two lottery outcomes are similar, or even identical. Experiment 2 further replicates the UE in a context in which the word “lottery” is never used (a company promotional). These results are consistent with a direct risk-aversion mechanism (Gneezy et al., 2006; Simonsohn, 2009) and suggest that the UE obtains across a number of different contexts.