Abstract
Abstract In this paper we assess the importance of sample type in the estimation of risk preferences. We elicit and compare risk preferences from student subjects and subjects drawn from the general population, using the multiple price list method devised by Holt and Laury in their paper Risk Aversion and Incentive Effects (2002). We find evidence suggesting that under rank dependent utility, students exhibit approximately risk neutral preferences while subjects drawn from the general population exhibit risk loving preferences. However, when we assume an incorrect characterization of risk preferences, in particular we adopt the framework of expected utility theory, our estimation results lead to erroneous inferences. In this case, students are on average risk averse, while subjects drawn from the general population exhibit risk neutrality. Our results have implications for economic policy making under uncertainty.
Highlights
Economic lab experiments have been mainly performed in academic environments and students have posed as the natural standard subject pool
Results show that age has a negative and statistically significant effect on risk aversion implying that general population subjects
In this article we tested whether risk preferences of subjects drawn from the general population differ with respect to a standard student subject pool
Summary
Economic lab experiments have been mainly performed in academic environments and students have posed as the natural standard subject pool. Whether student samples provide a reliable sample for extrapolating results to the general population is an issue that is heavily criticized. If riskneutrality is not a general characterization of the sample under investigation, it is important to know the subject’s pool preferences over risk. Only a few studies have examined risk preferences with respect to the nature of the subject pool and results have not been uniform (Andersen et al, 2010, 2011). This study sheds more light to risk preference elicitation in a conventional lab experiment (i.e., using a student subject pool) and an artefactual lab experiment (i.e., using a general population subject pool) in the Harrison and List (2004) terminology
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