Universität zu Köln

Ebert, Sebastian and Wiesen, Daniel (2014). Joint measurement of risk aversion, prudence, and temperance. J. Risk Uncertain., 48 (3). S. 231 - 253. DORDRECHT: SPRINGER. ISSN 1573-0476

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Abstract

Risk aversion-but also the higher-order risk preferences of prudence and temperance-are fundamental concepts in the study of economic decision making. We propose a method to jointly measure the intensity of risk aversion, prudence, and temperance. Our theoretical approach is to define risk compensations of different orders, and in an experiment we elicit these compensations with a price list technique. We find evidence for risk aversion, prudence, and temperance. These traits correlate within subjects. The compensations elicited for prudence are significantly larger than those for risk aversion and temperance. In contrast to commonly used utility functions, prospect theory can predict this behavioral pattern. In our experiment, risk-averse, risk-loving, and risk-neutral subjects are prudent. This supports a recent theoretical observation that prudence may be a more universal trait than previously realized.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Ebert, Sebastian UNSPECIFIED UNSPECIFIED UNSPECIFIED Wiesen, Daniel UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-436367
DOI:	10.1007/s11166-014-9193-0
Journal or Publication Title:	J. Risk Uncertain.
Volume:	48
Number:	3
Page Range:	S. 231 - 253
Date:	2014
Publisher:	SPRINGER
Place of Publication:	DORDRECHT
ISSN:	1573-0476
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language PROSPECT-THEORY; BACKGROUND RISK; DOWNSIDE RISK; UNCERTAINTY; PREFERENCE; DECISIONS; UTILITY; DEMAND; ATTITUDES; SEEKING Multiple languages Business, Finance; Economics Multiple languages
URI:	http://kups.ub.uni-koeln.de/id/eprint/43636