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Assessing the Construct Validity of Risk Attitude

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  • Joost M.E. Pennings

    (Wageningen University, Department of Social Sciences, Marketing ... Consumer Behavior Group, Hollandseweg 1, 6y06KN Wageningen, The Netherlands, and University of Illinois at Urbana-Champaign, Department of Agricultural ... Consumer Economics, Urbana, Illinois 61801)

  • Ale Smidts

    (Rotterdam School of Management, Erasmus University Rotterdam, The Netherlands)

Abstract

Two major approaches to measuring risk attitude are compared. One, based on the expected utility model is derived from responses to lotteries and direct scaling. The other measure is a psychometric approach based on Likert statements that produces a unidimensional risk attitude scale. The data are from computer-assisted interviews of 346 Dutch owner-managers of hog farms, who made decisions about their own businesses. While the measures demonstrate some degree of convergent validity, those measures based on lotteries were better predictors of actual market behavior. In contrast the psychometric scale showed more agreement to selfreported measures of innovativeness, market orientation, and the intention to reduce risk. In light of the higher predictive validity of lottery-based measurements, werecommend elicitation methods based on the expected utility paradigm.

Suggested Citation

  • Joost M.E. Pennings & Ale Smidts, 2000. "Assessing the Construct Validity of Risk Attitude," Management Science, INFORMS, vol. 46(10), pages 1337-1348, October.
    • Handle: RePEc:inm:ormnsc:v:46:y:2000:i:10:p:1337-1348
    DOI: 10.1287/mnsc.46.10.1337.12275
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    References listed on IDEAS

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