Abstract
The procedures previously used to determine risk preference (risk-averse, risk-neutral or risk-loving) exhibit a number of weaknesses. In part, they are so complex and sophisticated that the subjects frequently give spontaneous, ill-considered answers. In this way, their actual risk preference can often not be correctly determined. In addition, in this process there are situations and circumstances in which it is not possible to clearly assign subjects to one of the three categories of risk preference. In addition, with the previous approaches, loss aversion – which has an important influence on risk preference – is not taken into consideration, or only insufficiently. We propose here a new procedure to determine risk preference which is (1) extremely simple and clear, which (2) enables unambiguous differentiation between risk-averse, risk-neutral and risk-loving subjects, and which (3) takes the influence of loss aversion on risk preference into account in an appropriate way.
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