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Risk Preference Differentials of Small Groups and Individuals

Author

Listed:
  • Robert S. Shupp

    (Department of Economics, Ball State University)

  • Arlington Williams

    (Department of Economics, Indiana University)

Abstract

The risk preferences of three-person groups and individuals are compared using a non-sequential repeated-measures lottery experiment with $20 per-player win percentages varying from 10% to 90%. Analysis based on independent samples of certainty equivalent ratios (certainty equivalent/expected value) elicited using a maximum willingness-to-pay mechanism for fifty-two individuals and sixteen groups reveals that: 1) certainty equivalent ratios (CERs) vary significantly across lottery win percentages, 2) CER dispersion tends to decline as the lottery win percentage increases and is significantly smaller for groups than individuals in seven of the nine lotteries, 3) for the highest-risk lotteries, the average CERs submitted by groups are significantly smaller (more risk averse) than the average CERs submitted by individuals, 4) for the lowest-risk lotteries, the average CERs submitted by groups are approximately risk-neutral (CER=1) and somewhat larger than the average CERs submitted by individuals.

Suggested Citation

  • Robert S. Shupp & Arlington Williams, 2003. "Risk Preference Differentials of Small Groups and Individuals," Working Papers 200301, Ball State University, Department of Economics, revised Apr 2006.
    • Handle: RePEc:bsu:wpaper:200301
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    References listed on IDEAS

    as
    1. Ronald J. Baker & Susan K. Laury & Arlington W. Williams, 2008. "Comparing Small‐Group and Individual Behavior in Lottery‐Choice Experiments," Southern Economic Journal, John Wiley & Sons, vol. 75(2), pages 367-382, August.
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    3. Ronald J. Baker II & Susan K. Laury & Arlington W. Williams, 2008. "Comparing Small-Group and Individual Behavior in Lottery-Choice Experiments," Southern Economic Journal, John Wiley & Sons, vol. 75(2), pages 367-382, October.
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    More about this item

    Keywords

    lab experiments; risk preferences; group decisions; certainty equivalents;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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