Linking subjective and incentivized risk attitudes: The importance of losses

Abstract

The “general risk question” (GRQ) has been established as a quick way to meaningfully elicit subjective attitudes toward risk and correlates well with real-world behaviors involving risk. However, little is known about what aspects of attitudes toward financial risk are captured by the GRQ. We examine how answers to the GRQ correlate with different preference motives and biases toward financial risk using an incentivized choice task (n = 1,730). We find that the GRQ has meaningful correlation with loss aversion and attitudes toward variation in financial losses, but much weaker to non-existent correlations with attitudes toward variation in financial gains, likelihood insensitivity, and certainty preferences. These results suggest that practical applications using the GRQ as an index for financial risk preferences may be most appropriate in settings where decisions rest on attitudes toward financial losses.