IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v30y2019icp314-317.html
   My bibliography  Save this article

Understanding the order effect in eliciting risk aversion

Author

Listed:
  • Sohn, Kitae

Abstract

Economists have found the order effect in eliciting risk aversion but have failed to explain it. We analyzed a nationally representative Indonesian dataset with a large sample size (13,669 men and 15,590 women) by exploiting the randomized ordering of two sets of questions regarding risk preferences. Probit models, multinomial probit models, and interval regressions were applied. Both men and women became more risk tolerant after they responded to either set of questions. The results are consistent with a well-known phenomenon in psychology: familiarity produces the illusion of control and enhances confidence in oneself.

Suggested Citation

  • Sohn, Kitae, 2019. "Understanding the order effect in eliciting risk aversion," Finance Research Letters, Elsevier, vol. 30(C), pages 314-317.
    • Handle: RePEc:eee:finlet:v:30:y:2019:i:c:p:314-317
    DOI: 10.1016/j.frl.2018.10.014
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612318304616
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2018.10.014?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. repec:pri:cepsud:125krueger is not listed on IDEAS
    2. 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.
    3. Kitae Sohn, 2017. "The Risk Preferences Of Entrepreneurs In Indonesia," Bulletin of Economic Research, Wiley Blackwell, vol. 69(3), pages 271-287, July.
    4. Daniel Kahneman & Alan B. Krueger & David Schkade & Norbert Schwarz & Arthur A. Stone, 2006. "Would You Be Happier If You Were Richer? A Focusing Illusion," Working Papers 77, Princeton University, Department of Economics, Center for Economic Policy Studies..
    5. Kitae Sohn, 2016. "Risk Incomprehension and Its Economic Consequences," Journal of Development Studies, Taylor & Francis Journals, vol. 52(11), pages 1545-1560, November.
    6. 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.
    7. 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.
    8. Mahmud Yesuf & Randall A. Bluffstone, 2009. "Poverty, Risk Aversion, and Path Dependence in Low-Income Countries: Experimental Evidence from Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(4), pages 1022-1037.
    9. Kitae Sohn, 2018. "How does the ordering of questions affect elicited time preferences?," Applied Economics Letters, Taylor & Francis Journals, vol. 25(4), pages 244-248, February.
    10. Daniel Kahneman & Alan B. Krueger & David Schkade & Norbert Schwarz & Arthur A. Stone, 2006. "Would You Be Happier If You Were Richer? A Focusing Illusion," Working Papers 77, Princeton University, Department of Economics, Center for Economic Policy Studies..
    11. Glenn W. Harrison & Eric Johnson & Melayne M. McInnes & E. Elisabet Rutström, 2005. "Risk Aversion and Incentive Effects: Comment," American Economic Review, American Economic Association, vol. 95(3), pages 897-901, June.
    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. Kong, Hyeongwoo & Yun, Wonje & Kim, Woo Chang, 2023. "Tracking customer risk aversion," Finance Research Letters, Elsevier, vol. 54(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. Kerri Brick & Martine Visser & Justine Burns, 2012. "Risk Aversion: Experimental Evidence from South African Fishing Communities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 133-152.
    2. Galarza, Francisco, 2009. "Choices under Risk in Rural Peru," MPRA Paper 17708, University Library of Munich, Germany.
    3. Antoni Bosch-Domènech & Joaquim Silvestre, 2013. "Measuring risk aversion with lists: a new bias," Theory and Decision, Springer, vol. 75(4), pages 465-496, October.
    4. Sundar, B. & Virmani, Vineet, 2013. "Attitudes towards Risk of Forest Dependent Communities - Evidence from Andhra Pradesh," IIMA Working Papers WP2013-12-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    5. Giuseppe Attanasi & Nikolaos Georgantzís & Valentina Rotondi & Daria Vigani, 2018. "Lottery- and survey-based risk attitudes linked through a multichoice elicitation task," Theory and Decision, Springer, vol. 84(3), pages 341-372, May.
    6. David Bruner, 2009. "Changing the probability versus changing the reward," Experimental Economics, Springer;Economic Science Association, vol. 12(4), pages 367-385, December.
    7. Antoni Bosch-Domènech & Joaquim Silvestre, 2013. "Measuring risk aversion with lists: a new bias," Theory and Decision, Springer, vol. 75(4), pages 465-496, October.
    8. Ihli, Hanna Julia & Chiputwa, Brian & Musshoff, Oliver, 2013. "Do Changing Probabilities or Payoffs in Lottery-Choice Experiments Matter? Evidence from Rural Uganda," GlobalFood Discussion Papers 158146, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    9. Meraner, Manuela & Musshoff, Oliver & Finger, Robert, 2018. "Using involvement to reduce inconsistencies in risk preference elicitation," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 73(C), pages 22-33.
    10. Daniela Di Cagno & Marco Spallone, 2012. "An experimental investigation on optimal bankruptcy laws," European Journal of Law and Economics, Springer, vol. 33(1), pages 205-229, February.
    11. Antoni Bosch-Domènech & Joaquim Silvestre, 2006. "Risk aversion and embedding bias," Economics Working Papers 934, Department of Economics and Business, Universitat Pompeu Fabra.
    12. Johannes G. Jaspersen, 2016. "Hypothetical Surveys And Experimental Studies Of Insurance Demand: A Review," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(1), pages 217-255, January.
    13. Andreas C. Drichoutis & Jayson L. Lusk, 2016. "What can multiple price lists really tell us about risk preferences?," Journal of Risk and Uncertainty, Springer, vol. 53(2), pages 89-106, December.
    14. Howard Kunreuther & Erwann Michel-Kerjan, 2015. "Demand for fixed-price multi-year contracts: Experimental evidence from insurance decisions," Journal of Risk and Uncertainty, Springer, vol. 51(2), pages 171-194, October.
    15. Alejandro Arrieta & Ariadna García‐Prado & Paula González & José Luis Pinto‐Prades, 2017. "Risk attitudes in medical decisions for others: An experimental approach," Health Economics, John Wiley & Sons, Ltd., vol. 26(S3), pages 97-113, December.
    16. Giovanna Devetag & Andreas Ortmann, 2007. "When and why? A critical survey on coordination failure in the laboratory," Experimental Economics, Springer;Economic Science Association, vol. 10(3), pages 331-344, September.
    17. Drichoutis, Andreas & Lusk, Jayson, 2012. "Risk preference elicitation without the confounding effect of probability weighting," MPRA Paper 37762, University Library of Munich, Germany.
    18. Jacquemet, Nicolas & Rullière, Jean-Louis & Vialle, Isabelle, 2008. "Monitoring optimistic agents," Journal of Economic Psychology, Elsevier, vol. 29(5), pages 698-714, November.
    19. Maier, Johannes & Rüger, Maximilian, 2010. "Measuring Risk Aversion Model-Independently," Discussion Papers in Economics 11873, University of Munich, Department of Economics.
    20. Santos-Pinto, Luís & Astebro, Thomas & Mata, José, 2009. "Preference for Skew in Lotteries: Evidence from the Laboratory," MPRA Paper 17165, University Library of Munich, Germany.

    More about this item

    Keywords

    Order effect; Risk aversion; Randomization; Indonesia;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

    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:eee:finlet:v:30:y:2019:i:c:p:314-317. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    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.