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Investigating Risky Choices Over Losses Using Experimental Data

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  • Charles Mason
  • Jason Shogren
  • Chad Settle
  • John List

Abstract

We conduct a battery of experiments in which agents make choices from several pairs of all-loss-lotteries. Using these choices, we estimate a representation of individual preferences over lotteries. We find statistically and economically significant departures from expected utility maximization for many subjects. We also estimate a preference representation based on summary statistics for behavior in the population of subjects, and again find departures from expected utility maximization. Our results suggest that public policies based on an expected utility approach could significantly underestimate preferences and willingness to pay for risk reduction. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Charles Mason & Jason Shogren & Chad Settle & John List, 2005. "Investigating Risky Choices Over Losses Using Experimental Data," Journal of Risk and Uncertainty, Springer, vol. 31(2), pages 187-215, September.
    • Handle: RePEc:kap:jrisku:v:31:y:2005:i:2:p:187-215
    DOI: 10.1007/s11166-005-3554-7
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    11. Ashish K. Rathore & Arpan K. Kar & P. Vigneswara Ilavarasan, 2017. "Social Media Analytics: Literature Review and Directions for Future Research," Decision Analysis, INFORMS, vol. 14(4), pages 229-249, December.
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    14. W. J. Wouter Botzen & Jeroen C.J.M. van den Bergh, 2009. "Bounded Rationality, Climate Risks, and Insurance: Is There a Market for Natural Disasters?," Land Economics, University of Wisconsin Press, vol. 85(2), pages 265-278.
    15. Berns, Gregory S. & Capra, C. Monica & Moore, Sara & Noussair, Charles, 2007. "A shocking experiment: New evidence on probability weighting and common ratio violations," Judgment and Decision Making, Cambridge University Press, vol. 2(4), pages 234-242, August.
    16. Bilbao-Terol, Amelia & Arenas-Parra, Mar & Cañal-Fernández, Verónica, 2016. "A model based on Copula Theory for sustainable and social responsible investments," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 19(1), pages 55-76.
    17. Cristina OTTAVIANI & Daniela VANDONE, 2011. "Decision-making under uncertainty and demand for insurance: an empirical study," Departmental Working Papers 2011-05, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
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