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Endowment effects in the risky investment game?

Author

Listed:
  • Stein T. Holden

    (Norwegian University of Life Sciences)

  • Mesfin Tilahun

    (Norwegian University of Life Sciences
    Mekelle University)

Abstract

The risky investment game of Gneezy and Potters (Q J Econ 112(2):631–645, 1997) has been proposed as a simple tool to measure risk aversion in applied settings, especially attractive in settings where participants may have limited education. However, this game can produce a significant endowment effect (attached to the initial position), so that analysis of the behavior in this game should not be done in the Expected Utility Theory (EUT) framework. The paper illustrates this point, by showing that risk tolerance can be much higher when the initial endowment concerns a risky lottery.

Suggested Citation

  • Stein T. Holden & Mesfin Tilahun, 2022. "Endowment effects in the risky investment game?," Theory and Decision, Springer, vol. 92(1), pages 259-274, February.
    • Handle: RePEc:kap:theord:v:92:y:2022:i:1:d:10.1007_s11238-021-09821-4
    DOI: 10.1007/s11238-021-09821-4
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    References listed on IDEAS

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