Consistency of determined risk attitudes and probability weightings across different elicitation methods

Abstract

In comparing different risk elicitation methods under the assumptions of expected utility theory, previous studies have found significant differences in the elicited risk attitudes. This paper extends this line of research to consider cumulative prospect theory by comparing risk attitudes and probability weightings determined using two elicitation methods: the method by Tanaka et al. (Am Econ Rev 100(1):557–571, 2010; TCN method) and the method by Wakker and Deneffe (Manage Sci 42(8):1131–1150, 1996; WD method). We demonstrate that the two methods reveal significantly different mean values for the measured risk attitudes. Participants are classified on average as moderately risk-averse using the TCN method, whereas the same individuals are classified as nearly risk-neutral using the WD method. Moreover, we find that on average, participants overweight low probabilities and underweight high probabilities to a greater extent with the WD method than with the TCN method. Therefore, the different elicitation methods, that both consider probability weighting, can lead to different measured values of risk attitude and probability weighting.