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Small stakes risk aversion in the laboratory : a reconsideration.

Harrison, G.W. and Lau, M. and Ross, D. and Swarthout, J.T. (2017) 'Small stakes risk aversion in the laboratory : a reconsideration.', Economics letters., 160 . pp. 24-28.

Abstract

Evidence of risk aversion in laboratory settings over small stakes leads to a priori implausible levels of risk aversion over large stakes under certain assumptions. One core assumption in statements of this calibration puzzle is that small-stakes risk aversion is observed over all levels of wealth, or over a “sufficiently large” range of wealth. Although this assumption is viewed as self-evident from the vast experimental literature showing risk aversion over laboratory stakes, it actually requires that lab wealth be varied for a given subject as one evaluates the risk attitudes of the subject. We consider evidence from a simple design that tests this assumption, and find that the assumption is strikingly rejected for a large sample of subjects from a population of college students. We conclude that the implausible predictions that flow from these assumptions do not apply to one specialized population widely used to study economic behavior in laboratory experiments.

Item Type:Article
Full text:Publisher-imposed embargo until 19 February 2019.
(AM) Accepted Manuscript
First Live Deposit - 31 July 2017
Available under License - Creative Commons Attribution Non-commercial No Derivatives.
File format - PDF
(231Kb)
Status:Peer-reviewed
Publisher Web site:https://doi.org/10.1016/j.econlet.2017.08.003
Publisher statement:© 2017 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Record Created:31 Jul 2017 16:13
Last Modified:20 Sep 2017 11:42

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