IDEAS home Printed from https://ideas.repec.org/p/zur/econwp/362.html
   My bibliography  Save this paper

The predictive power of risk elicitation tasks

Author

Listed:
  • Michele Garagnani

Abstract

This work reports an online experiment with a general-population sample examining the performance of budget-choice tasks for elicitation of risk attitudes. First, I compare the investment task of Gneezy and Potters (1997) with the standard choicelist method of Holt and Laury (2002), and evaluate their performance in terms of the number of correctly-predicted binary decisions in a set of out-of-sample lottery choices. There are no significant differences between the tasks in this sense, and performance is modest. Second, I included three additional budget-choice tasks (selection of a lottery from a linear budget set) where optimal decisions should have been corner solutions, and find that a large majority of participants provided interior solutions instead, casting doubts on subjects’ understanding of tasks of this type.

Suggested Citation

  • Michele Garagnani, 2020. "The predictive power of risk elicitation tasks," ECON - Working Papers 362, Department of Economics - University of Zurich.
  • Handle: RePEc:zur:econwp:362
    as

    Download full text from publisher

    File URL: https://www.zora.uzh.ch/id/eprint/190318/1/econwp362.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Tamás Csermely & Alexander Rabas, 2016. "How to reveal people’s preferences: Comparing time consistency and predictive power of multiple price list risk elicitation methods," Journal of Risk and Uncertainty, Springer, vol. 53(2), pages 107-136, December.
    2. Syngjoo Choi & Shachar Kariv & Wieland M?ller & Dan Silverman, 2014. "Who Is (More) Rational?," American Economic Review, American Economic Association, vol. 104(6), pages 1518-1550, June.
    3. Catherine C. Eckel & Philip J. Grossman, 2002. "Sex Differences and Statistical Stereotyping in Attitudes Toward Financial Risk," Monash Economics Working Papers archive-03, Monash University, Department of Economics.
    4. Hans P. Binswanger, 1980. "Attitudes Toward Risk: Experimental Measurement in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 395-407.
    5. Marco Castillo & David L. Dickinson & Ragan Petrie, 2017. "Sleepiness, choice consistency, and risk preferences," Theory and Decision, Springer, vol. 82(1), pages 41-73, January.
    6. Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2007. "Estimating Risk Attitudes in Denmark: A Field Experiment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 341-368, June.
    7. Peter Moffatt, 2005. "Stochastic Choice and the Allocation of Cognitive Effort," Experimental Economics, Springer;Economic Science Association, vol. 8(4), pages 369-388, December.
    8. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2011. "Individual Risk Attitudes: Measurement, Determinants, And Behavioral Consequences," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 522-550, June.
    9. Glenn W. Harrison & Morten I. Lau & Hong Il Yoo, 2020. "Risk Attitudes, Sample Selection, and Attrition in a Longitudinal Field Experiment," The Review of Economics and Statistics, MIT Press, vol. 102(3), pages 552-568, July.
    10. Charles A. Holt & Susan K. Laury, 2005. "Risk Aversion and Incentive Effects: New Data without Order Effects," American Economic Review, American Economic Association, vol. 95(3), pages 902-912, June.
    11. Peter P. Wakker, 2008. "Explaining the characteristics of the power (CRRA) utility family," Health Economics, John Wiley & Sons, Ltd., vol. 17(12), pages 1329-1344, December.
    12. Matthew Polisson & John K.-H. Quah & Ludovic Renou, 2020. "Revealed Preferences over Risk and Uncertainty," American Economic Review, American Economic Association, vol. 110(6), pages 1782-1820, June.
    13. Gary Charness & Uri Gneezy, 2010. "Portfolio Choice And Risk Attitudes: An Experiment," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 133-146, January.
    14. John D. Hey & Noemi Pace, 2018. "The explanatory and predictive power of non two-stage-probability theories of decision making under ambiguity," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 6, pages 139-167, World Scientific Publishing Co. Pte. Ltd..
    15. Alós-Ferrer, Carlos & Garagnani, Michele, 2021. "Choice consistency and strength of preference," Economics Letters, Elsevier, vol. 198(C).
    16. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    17. Hans-Martin von Gaudecker & Arthur van Soest & Erik Wengstrom, 2011. "Heterogeneity in Risky Choice Behavior in a Broad Population," American Economic Review, American Economic Association, vol. 101(2), pages 664-694, April.
    18. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-1289, November.
    19. Steffen Andersen & Glenn Harrison & Morten Lau & E. Rutström, 2009. "Elicitation using multiple price list formats," Experimental Economics, Springer;Economic Science Association, vol. 12(3), pages 365-366, September.
    20. Haita-Falah, Corina, 2017. "Sunk-cost fallacy and cognitive ability in individual decision-making," Journal of Economic Psychology, Elsevier, vol. 58(C), pages 44-59.
    21. Syngjoo Choi & Raymond Fisman & Douglas Gale & Shachar Kariv, 2007. "Consistency, Heterogeneity, and Granularity of Individual Behavior under Uncertainty," Economics Working Papers 0076, Institute for Advanced Study, School of Social Science.
    22. Yoram Halevy & Dotan Persitz & Lanny Zrill, 2018. "Parametric Recoverability of Preferences," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1558-1593.
    23. Alós-Ferrer, Carlos & Hügelschäfer, Sabine, 2016. "Faith in intuition and cognitive reflection," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 64(C), pages 61-70.
    24. Gary Charness & Thomas Garcia & Theo Offerman & Marie Claire Villeval, 2020. "Do measures of risk attitude in the laboratory predict behavior under risk in and outside of the laboratory?," Journal of Risk and Uncertainty, Springer, vol. 60(2), pages 99-123, April.
    25. Hans-Martin von Gaudecker & Arthur van Soest & Erik Wengstrom, 2011. "Heterogeneity in Risky Choice Behavior in a Broad Population," American Economic Review, American Economic Association, vol. 101(2), pages 664-694, April.
    26. Anwesha Bandyopadhyay & Lutfunnahar Begum & Philip J. Grossman, 2021. "Gender differences in the stability of risk attitudes," Journal of Risk and Uncertainty, Springer, vol. 63(2), pages 169-201, October.
    27. Uri Gneezy & Jan Potters, 1997. "An Experiment on Risk Taking and Evaluation Periods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 631-645.
    28. David Ahn & Syngjoo Choi & Douglas Gale & Shachar Kariv, 2014. "Estimating ambiguity aversion in a portfolio choice experiment," Quantitative Economics, Econometric Society, vol. 5, pages 195-223, July.
    29. Armin Falk & Anke Becker & Thomas Dohmen & Benjamin Enke & David B. Huffman & Uwe Sunde, 2017. "Global Evidence on Economic Preferences," NBER Working Papers 23943, National Bureau of Economic Research, Inc.
    30. Syngjoo Choi & Raymond Fisman & Douglas Gale & Shachar Kariv, 2007. "Consistency and Heterogeneity of Individual Behavior under Uncertainty," American Economic Review, American Economic Association, vol. 97(5), pages 1921-1938, December.
    31. Catherine C. Eckel & Philip J. Grossman, 2008. "Forecasting Risk Attitudes: An Experimental Study Using Actual and Forecast Gamble Choices," Monash Economics Working Papers archive-01, Monash University, Department of Economics.
    32. Armin Falk & Anke Becker & Thomas Dohmen & Benjamin Enke & David Huffman & Uwe Sunde, 2018. "Global Evidence on Economic Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(4), pages 1645-1692.
    33. Jonathan P. Beauchamp & David Cesarini & Magnus Johannesson, 2017. "The psychometric and empirical properties of measures of risk preferences," Journal of Risk and Uncertainty, Springer, vol. 54(3), pages 203-237, June.
    34. Rui Mata & Renato Frey & David Richter & Jürgen Schupp & Ralph Hertwig, 2018. "Risk Preference: A View from Psychology," Journal of Economic Perspectives, American Economic Association, vol. 32(2), pages 155-172, Spring.
    35. Chetan Dave & Catherine Eckel & Cathleen Johnson & Christian Rojas, 2010. "Eliciting risk preferences: When is simple better?," Journal of Risk and Uncertainty, Springer, vol. 41(3), pages 219-243, December.
    36. Harrison, Glenn W. & Rutström, E. Elisabet, 2008. "Experimental Evidence on the Existence of Hypothetical Bias in Value Elicitation Methods," Handbook of Experimental Economics Results, in: Charles R. Plott & Vernon L. Smith (ed.), Handbook of Experimental Economics Results, edition 1, volume 1, chapter 81, pages 752-767, Elsevier.
    37. Andreas C Drichoutis & Rodolfo M Nayga, 2020. "Economic Rationality under Cognitive Load," The Economic Journal, Royal Economic Society, vol. 130(632), pages 2382-2409.
    38. Douglas M. Gale & Shachar Kariv & Syngjoo Choi & Raymond Fisman, 2007. "Revealing Preferences Graphically: An Old Method Gets a New Tool Kit," American Economic Review, American Economic Association, vol. 97(2), pages 153-158, May.
    39. Ben Gillen & Erik Snowberg & Leeat Yariv, 2019. "Experimenting with Measurement Error: Techniques with Applications to the Caltech Cohort Study," Journal of Political Economy, University of Chicago Press, vol. 127(4), pages 1826-1863.
    40. Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008. "Eliciting Risk and Time Preferences," Econometrica, Econometric Society, vol. 76(3), pages 583-618, May.
    41. Paolo Crosetto & Antonio Filippin, 2016. "A theoretical and experimental appraisal of four risk elicitation methods," Experimental Economics, Springer;Economic Science Association, vol. 19(3), pages 613-641, September.
    42. Charles Bellemare & Sabine Kröger & Arthur van Soest, 2008. "Measuring Inequity Aversion in a Heterogeneous Population Using Experimental Decisions and Subjective Probabilities," Econometrica, Econometric Society, vol. 76(4), pages 815-839, July.
    43. Friedman, Daniel & Habib, Sameh & James, Duncan & Williams, Brett, 2022. "Varieties of risk preference elicitation," Games and Economic Behavior, Elsevier, vol. 133(C), pages 58-76.
    44. Anna Conte & John D. Hey & Peter G. Moffatt, 2018. "Mixture models of choice under risk," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 1, pages 3-12, World Scientific Publishing Co. Pte. Ltd..
    45. Isaac M. Lipkus & Greg Samsa & Barbara K. Rimer, 2001. "General Performance on a Numeracy Scale among Highly Educated Samples," Medical Decision Making, , vol. 21(1), pages 37-44, February.
    46. Gary Charness & Catherine Eckel & Uri Gneezy & Agne Kajackaite, 2018. "Complexity in risk elicitation may affect the conclusions: A demonstration using gender differences," Journal of Risk and Uncertainty, Springer, vol. 56(1), pages 1-17, February.
    47. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
    48. Carlos Alós-Ferrer & Michele Garagnani, 2022. "Strength of preference and decisions under risk," Journal of Risk and Uncertainty, Springer, vol. 64(3), pages 309-329, June.
    49. Peter P. Wakker, 2008. "Explaining the characteristics of the power (CRRA) utility family," Health Economics, John Wiley & Sons, Ltd., vol. 17(12), pages 1329-1344.
    50. Vered Kurtz-David & Dotan Persitz & Ryan Webb & Dino J. Levy, 2019. "The neural computation of inconsistent choice behavior," Nature Communications, Nature, vol. 10(1), pages 1-14, December.
    51. Friedman, Daniel & Isaac, R. Mark & James, Duncan & Sunder, Shyam, 2014. "Risky Curves: On the Empirical Failure of Expected Utility," Santa Cruz Department of Economics, Working Paper Series qt87v8k86z, Department of Economics, UC Santa Cruz.
    52. Palan, Stefan & Schitter, Christian, 2018. "Prolific.ac—A subject pool for online experiments," Journal of Behavioral and Experimental Finance, Elsevier, vol. 17(C), pages 22-27.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carlos Alós-Ferrer & Georg D. Granic, 2023. "Does choice change preferences? An incentivized test of the mere choice effect," Experimental Economics, Springer;Economic Science Association, vol. 26(3), pages 499-521, July.
    2. Ronald Klingebiel & Feibai Zhu, 2023. "Ambiguity aversion and the degree of ambiguity," Journal of Risk and Uncertainty, Springer, vol. 67(3), pages 299-324, December.
    3. Carlos Alós-Ferrer & Michele Garagnani, 2022. "Strength of preference and decisions under risk," Journal of Risk and Uncertainty, Springer, vol. 64(3), pages 309-329, June.
    4. Alós-Ferrer, Carlos & Garagnani, Michele, 2021. "Choice consistency and strength of preference," Economics Letters, Elsevier, vol. 198(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Galizzi, Matteo M. & Machado, Sara R. & Miniaci, Raffaele, 2016. "Temporal stability, cross-validity, and external validity of risk preferences measures: experimental evidence from a UK representative sample," LSE Research Online Documents on Economics 67554, London School of Economics and Political Science, LSE Library.
    2. Tamás Csermely & Alexander Rabas, 2016. "How to reveal people’s preferences: Comparing time consistency and predictive power of multiple price list risk elicitation methods," Journal of Risk and Uncertainty, Springer, vol. 53(2), pages 107-136, December.
    3. Holzmeister, Felix & Stefan, Matthias, 2019. "The Risk Elicitation Puzzle Revisited: Across-Methods (In)consistency?," OSF Preprints pj9u2, Center for Open Science.
    4. Felix Holzmeister & Matthias Stefan, 2021. "The risk elicitation puzzle revisited: Across-methods (in)consistency?," Experimental Economics, Springer;Economic Science Association, vol. 24(2), pages 593-616, June.
    5. Felix Holzmeister & Matthias Stefan, 2019. "The risk elicitation puzzle revisited: Across-methods (in)consistency?," Working Papers 2019-19, Faculty of Economics and Statistics, Universität Innsbruck.
    6. Gary Charness & Thomas Garcia & Theo Offerman & Marie Claire Villeval, 2020. "Do measures of risk attitude in the laboratory predict behavior under risk in and outside of the laboratory?," Journal of Risk and Uncertainty, Springer, vol. 60(2), pages 99-123, April.
    7. Ola Andersson & Håkan J. Holm & Jean-Robert Tyran & Erik Wengström, 2020. "Robust inference in risk elicitation tasks," Journal of Risk and Uncertainty, Springer, vol. 61(3), pages 195-209, December.
    8. Friedman, Daniel & Habib, Sameh & James, Duncan & Williams, Brett, 2022. "Varieties of risk preference elicitation," Games and Economic Behavior, Elsevier, vol. 133(C), pages 58-76.
    9. Menkhoff, Lukas & Sakha, Sahra, 2017. "Estimating risky behavior with multiple-item risk measures," Journal of Economic Psychology, Elsevier, vol. 59(C), pages 59-86.
    10. Antonio FILIPPIN & Paolo CROSETTO, 2014. "A Reconsideration of Gender Differences in Risk Attitudes," Departmental Working Papers 2014-01, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    11. Hans-Martin Gaudecker & Arthur Soest & Erik Wengström, 2012. "Experts in experiments," Journal of Risk and Uncertainty, Springer, vol. 45(2), pages 159-190, October.
    12. Paolo Crosetto & Antonio Filippin, 2016. "A theoretical and experimental appraisal of four risk elicitation methods," Experimental Economics, Springer;Economic Science Association, vol. 19(3), pages 613-641, September.
    13. Arianna Galliera & E. Elisabet Rutström, 2021. "Crowded out: Heterogeneity in risk attitudes among poor households in the US," Journal of Risk and Uncertainty, Springer, vol. 63(2), pages 103-132, October.
    14. Ranganathan, Kavitha & Lejarraga, Tomás, 2021. "Elicitation of risk preferences through satisficing," Journal of Behavioral and Experimental Finance, Elsevier, vol. 32(C).
    15. Jonathan Chapman & Erik Snowberg & Stephanie Wang & Colin Camerer, 2018. "Loss Attitudes in the U.S. Population: Evidence from Dynamically Optimized Sequential Experimentation (DOSE)," NBER Working Papers 25072, National Bureau of Economic Research, Inc.
    16. Murong Yang & Laurence S. J. Roope & James Buchanan & Arthur E. Attema & Philip M. Clarke & A. Sarah Walker & Sarah Wordsworth, 2022. "Eliciting risk preferences that predict risky health behavior: A comparison of two approaches," Health Economics, John Wiley & Sons, Ltd., vol. 31(5), pages 836-858, May.
    17. Charness, Gary & Gneezy, Uri & Imas, Alex, 2013. "Experimental methods: Eliciting risk preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 87(C), pages 43-51.
    18. Hans-Martin von Gaudecker & Arthur van Soest & Erik Wengstrom, 2011. "Heterogeneity in Risky Choice Behavior in a Broad Population," American Economic Review, American Economic Association, vol. 101(2), pages 664-694, April.
    19. Jeffrey Butler & Luigi Guiso & Tullio Jappelli, 2014. "The role of intuition and reasoning in driving aversion to risk and ambiguity," Theory and Decision, Springer, vol. 77(4), pages 455-484, December.
    20. Thomas Meissner & Xavier Gassmann & Corinne Faure & Joachim Schleich, 2023. "Individual characteristics associated with risk and time preferences: A multi country representative survey," Journal of Risk and Uncertainty, Springer, vol. 66(1), pages 77-107, February.

    More about this item

    Keywords

    Risk preferences; elicitation methods; budget sets; portfolio Choices;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zur:econwp:362. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Severin Oswald (email available below). General contact details of provider: https://edirc.repec.org/data/seizhch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.