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Risk aversion over price variability: experimental evidence

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  • Seyyed Ali Zeytoon Nejad Moosavian
  • Robert Hammond
  • Barry K. Goodwin

Abstract

Eliciting risk attitudes is of crucial importance in economics. We test whether the degree of risk aversion that an individual exhibits in the context of the direct utility function is equivalent to that elicited in the context of the indirect utility function, as implied by duality theory. Our lab experiment uses payoff-based lottery choices (which are based on the direct utility function) and equivalent price-based lottery choices (which are based on the indirect utility function). We reject the equivalence of risk preferences from these two contexts. Subjects are more sensitive to price uncertainty than to equivalent payoff uncertainty.

Suggested Citation

  • Seyyed Ali Zeytoon Nejad Moosavian & Robert Hammond & Barry K. Goodwin, 2020. "Risk aversion over price variability: experimental evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 27(21), pages 1739-1745, December.
    • Handle: RePEc:taf:apeclt:v:27:y:2020:i:21:p:1739-1745
    DOI: 10.1080/13504851.2020.1717426
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    Cited by:

    1. Ali Zeytoon-Nejad, 2022. "Measuring Price Risk Aversion through Indirect Utility Functions: A Laboratory Experiment," Games, MDPI, vol. 13(4), pages 1-43, August.

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