Framing Effects in the Elicitation of Risk Aversion: An Experimental Study

Abstract

The most common experimental methods to elicit risk aversion present the decision maker with a menu of lotteries and ask her to state her preferences. Lotteries are typically presented through a verbal description stating the outcomes and their likelihoods (“$100 with probability 10%”, “1 in 10 chance to win $100”), sometimes accompanied by a pictorial display (a pie chart or bar graph). Literature on risk communication suggests that alternative but equivalent numeric formats (e.g., percentages vs ratios) and pictorial displays (continuous vs discrete) may lead to a different perception of risk and aversion to it. The present experiment (N = 95) tests for such framing effects in a multiple price list task (MPL). Numeric risk information is framed either as percentages (“10%”) or as ratios (“1 out of 10”). To mirror the numeric framing, the pictorial display is framed either as a two-slice pie chart, representing likelihoods as proportions between areas, or a ten-slice pie chart, representing likelihoods as the number of units over a total. Results show that neither the numeric nor the pictorial framings significantly altered the average elicited risk aversion. This suggests that in MPLs and similar lottery-based tasks risk perception and aversion may be robust to such numeric and pictorial framings.