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Eliciting Risk Preferences Using Choice Lists

Author

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  • Freeman, David
  • Halevy, Yoram
  • Kneeland, Terri

Abstract

We study the effect of embedding pairwise choices between lotteries within a choice list on measured risk attitude. Using an experiment with online workers, we find that subjects choose the risky lottery rather than a sure payment significantly more often when responding to a choice list. This behavior can be rationalized by the interaction between non-expected utility and the random incentive system, as suggested by Karni and Safra (1987).

Suggested Citation

  • Freeman, David & Halevy, Yoram & Kneeland, Terri, 2015. "Eliciting Risk Preferences Using Choice Lists," Microeconomics.ca working papers yoram_halevy-2015-9, Vancouver School of Economics, revised 09 Jan 2018.
    • Handle: RePEc:ubc:pmicro:yoram_halevy-2015-9
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    File URL: http://faculty.arts.ubc.ca/yhalevy/List_PC_FHK.pdf
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    Keywords

    random incentive system; isolation; independence axiom; multiple price list; reduction of compound lotteries; preference reversals; certainty effect;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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