Differences In Risk Attitudes Research Articles

Inducing alternative-based and characteristic-based search procedures in risky choice

AbstractWe propose a novel experimental design aimed at investigating whether inducing individuals to use certain choice procedures has an effect on the outcome of their decision. Specifically, by implementing a modification of the mouse-tracing method, we induce subjects to use either alternative-based or characteristic-based search procedures in a between-subject lottery-choice experiment. We find that encouraging subjects to search by characteristic systematically makes them choose riskier options. Consistently with existing literature, our evidence indicates that individuals typically look up information within alternatives. However, when induced to search by characteristic, high prizes receive more attention, leading individuals to switch to non-compensatory heuristics and – consequently – make riskier choices. Our findings are robust to variations in the complexity of the choice problem and individual differences in risk-attitudes, CRT scores, and gender.

Assessing a domain-specific risk-taking construct: A meta-analysis of reliability of the DOSPERT scale

AbstractThe DOSPERT scale has been used extensively to understand individual differences in risk attitudes across varying decision domains since 2002. The present study reports a reliability generalization meta-analysis to summarize the internal consistency of both the initial and the revised versions of DOSPERT. It also examined factors that can influence the reliability of the DOSPERT and its subscales. A total of 104 samples (N = 30,109) that reported 465 coefficient alphas were analyzed. Results of meta-regression models showed that the overall coefficient alpha of the DOSPERT total scores was satisfactory, regardless of the scale and study characteristics. Coefficient alphas varied significantly across domain subscales, with values ranging from .68 for the social domain to .80 for the recreational domain. In addition, the alpha coefficients of subscales varied significantly depending on various study characteristics. Finally, we report the meta-analysis of the intercorrelations among DOSPERT subscales and reveal that intercorrelations among the subscales are heterogeneous. We discuss the theoretical implications of the present findings.

Supplemental Material for Age Differences in Risk Attitude Are Shaped by Option Complexity

Supplemental Material for Age Differences in Risk Attitude Are Shaped by Option Complexity

Spatial conservation planning under uncertainty: adapting to climate change risks using modern portfolio theory.

Climate change and urban growth impact habitats, species, and ecosystem services. To buffer against global change, an established adaptation strategy is designing protected areas to increase representation and complementarity of biodiversity features. Uncertainty regarding the scale and magnitude of landscape change complicates reserve planning and exposes decision makers to the risk of failing to meet conservation goals. Conservation planning tends to treat risk as an absolute measure, ignoring the context of the management problem and risk preferences of stakeholders. Application of risk management theory to conservation emphasizes the diversification of a portfolio of assets, with the goal of reducing the impact of system volatility on investment return. We use principles of Modern Portfolio Theory (MPT), which quantifies risk as the variance and correlation among assets, to formalize diversification as an explicit strategy for managing risk in climate-driven reserve design. We extend MPT to specify a framework that evaluates multiple conservation objectives, allows decision makers to balance management benefits and risk when preferences are contested or unknown, and includes additional decision options such as parcel divestment when evaluating candidate reserve designs. We apply an efficient search algorithm that optimizes portfolio design for large conservation problems and a game theoretic approach to evaluate portfolio trade-offs that satisfy decision makers with divergent benefit and risk tolerances, or when a single decision maker cannot resolve their own preferences. Evaluating several risk profiles for a case study in South Carolina, our results suggest that a reserve design may be somewhat robust to differences in risk attitude but that budgets will likely be important determinants of conservation planning strategies, particularly when divestment is considered a viable alternative. We identify a possible fiscal threshold where adequate resources allow protecting a sufficiently diverse portfolio of habitats such that the risk of failing to achieve conservation objectives is considerably lower. For a range of sea-level rise projections, conversion of habitat to open water (14-180%) and wetland loss (1-7%) are unable to be compensated under the current protected network. In contrast, optimal reserve design outcomes are predicted to ameliorate expected losses relative to current and future habitat protected under the existing conservation estate.

Gender differences in risk behavior: An analysis of asset allocation decisions in Ghana

Abstract Within a developing country context, little is known about gender differences in risk preferences as reflected in asset allocation decisions. Much of the empirical literature within development studies on risk and investment in assets centers on risk coping and risk management strategies of households. With some exceptions, this literature primarily focuses on household and household-level outcomes. Previous experimental studies have explored gender differences in risk preferences in developing countries with inconclusive results. Using unique national-representative sex-disaggregated data with self-reported asset ownership and wealth information of individuals within households in Ghana from a multi-country project, The Gender Asset Gap Project, this paper explores men and women's risk preferences as reflected in asset allocation decisions through a decomposition method typically used to explore gender differences in wage employment. The study finds that although women hold significantly fewer risky assets than men in absolute terms and as a proportion of their wealth in the sample, men and women do not have systematically different risk preferences. The results in this paper differ from the results in many empirical studies in developed countries, where women are often found to be more risk averse than men. As the first study to look at gender differences in risk aversion in terms of asset allocation with in the developing country context, the results from this study provide evidence that gender differences in risk attitudes may vary by cultural context as the growing experimental literature in developing countries suggests.

Locus of control and financial risk attitudes

An extensive literature in economics investigates the relationship between cognitive abilities and financial risk attitudes. Yet, little is known about the importance of non-cognitive skills for financial risk attitudes. In this study, we focus on one specific non-cognitive skill, namely locus of control, which represents the extent to which an individual believes that life events are outcomes of his/her own actions. Using Australian panel data, we show that locus of control is positively related to the risk attitudes of older individuals who also differ significantly from younger individuals. The observed difference in risk attitudes between the young and the old is found among females but not males. These findings provide new empirical evidence on financial risk attitudes and how they relate to three sources of individual heterogeneity: locus of control, gender, and age group.

Risk preferences impose a hidden distortion on measures of choice impulsivity.

Measuring temporal discounting through the use of intertemporal choice tasks is now the gold standard method for quantifying human choice impulsivity (impatience) in neuroscience, psychology, behavioral economics, public health and computational psychiatry. A recent area of growing interest is individual differences in discounting levels, as these may predispose to (or protect from) mental health disorders, addictive behaviors, and other diseases. At the same time, more and more studies have been dedicated to the quantification of individual attitudes towards risk, which have been measured in many clinical and non-clinical populations using closely related techniques. Economists have pointed to interactions between measurements of time preferences and risk preferences that may distort estimations of the discount rate. However, although becoming standard practice in economics, discount rates and risk preferences are rarely measured simultaneously in the same subjects in other fields, and the magnitude of the imposed distortion is unknown in the assessment of individual differences. Here, we show that standard models of temporal discounting —such as a hyperbolic discounting model widely present in the literature which fails to account for risk attitudes in the estimation of discount rates— result in a large and systematic pattern of bias in estimated discounting parameters. This can lead to the spurious attribution of differences in impulsivity between individuals when in fact differences in risk attitudes account for observed behavioral differences. We advance a model which, when applied to standard choice tasks typically used in psychology and neuroscience, provides both a better fit to the data and successfully de-correlates risk and impulsivity parameters. This results in measures that are more accurate and thus of greater utility to the many fields interested in individual differences in impulsivity.

An extended stochastic VIKOR model with decision maker's attitude towards risk

We propose a risk-based stochastic VIKOR (RB-VIKOR) model that accounts for differences in the risk attitudes of the decision makers (DMs) when ranking stochastic alternatives. Our proposed RB-VIKOR model is designed to solve multi-criteria problems characterized by stochastic data and DMs categorized by their risk averse or risk seeking behavior. These differences in risk attitudes determine the subjective beliefs of the DMs regarding the evaluation of each alternative per decision criterion and the resulting rankings. We present a case study in the banking industry to illustrate how differences in the risk attitudes of the DMs condition the rankings obtained. Moreover, we compare our results with those derived from a stochastic super-efficiency data envelopment analysis (DEA) model to demonstrate the applicability and efficacy of RB-VIKOR. The proposed method has a considerable amount of potential applications to diverse research areas ranging from economics to knowledge based and decision support systems.

Should I Stay or Should I Go Now? Or Should I Wait and See? Influences on Wildfire Evacuation Decisions.

As climate change has contributed to longer fire seasons and populations living in fire-prone ecosystems increase, wildfires have begun to affect a growing number of people. As a result, interest in understanding the wildfire evacuation decision process has increased. Of particular interest is understanding why some people leave early, some choose to stay and defend their homes, and others wait to assess conditions before making a final decision. Individuals who tend to wait and see are of particular concern given the dangers of late evacuation. To understand what factors might influence different decisions, we surveyed homeowners in three areas in the United States that recently experienced a wildfire. The Protective Action Decision Model was used to identify a suite of factors previously identified as potentially relevant to evacuation decisions. Our results indicate that different beliefs about the efficacy of a particular response or action (evacuating or staying to defend), differences in risk attitudes, and emphasis on different cues to act (e.g., official warnings, environmental cues) are key factors underlying different responses. Further, latent class analysis indicates there are two general classes of individuals: those inclined to evacuate and those inclined to stay, and that a substantial portion of each class falls into the wait and see category.

Individual classification of strong risk attitudes: An application across lottery types and age groups.

Empirical evaluations of risk attitudes often rely on a weak definition of risk that concerns preferences towards risky and riskless options (e.g., a lottery vs. a sure outcome). A large body of work has shown that individuals tend to be weak risk averse in choice contexts involving risky and riskless gains but weak risk seeking in contexts involving losses, a phenomenon known as the reflection effect. Recent attempts to evaluate age differences in risk attitudes have relied on this weak definition, testing whether the reflection effect increases or diminishes as we grow older. The present work argues that weak risk attitudes have limited generalizability and proposes the use of a strong definition of risk that is concerned with preferences towards options with the same expected value but different degrees of risk (i.e., outcome variance). A reanalysis of previously-published data and the results from a new study show that only a minority of individuals manifests the reflection effect under a strong definition of risk, and that, when facing certain lottery-pair types, older adults appear to be more risk seeking than younger adults.

Safe Options Induce Gender Differences in Risk Attitudes

Gender differences in risk attitudes are frequently observed, although recent literature has shown that they are context dependent rather than ubiquitous. In this paper we try to rationalize the heterogeneity of results investigating experimentally whether the presence of a safe option among the set of alternatives explains why females are more risk averse than males. We manipulate three widely used risk elicitation methods finding that the availability of a safe option causally affects risk attitudes. The presence of a riskless alternative does not entirely explain the gender gap but it has a significant effect in triggering or magnifying (when already present) such differences. Despite the pronounced instability that usually characterizes the measurement of risk preferences, we show estimating a structural model that the effect of a safe option is remarkably stable across tasks. This paper constitutes the first successful attempt to shed light on the determinants of gender differences in risk attitudes.

A Reconsideration of Gender Differences in Risk Attitudes

This paper reconsiders the wide agreement that females are more risk averse than males. We survey the existing experimental literature, finding that significance and magnitude of gender differences are task specific. We gather data from 54 replications of the Holt and Laury risk elicitation method, involving about 7,000 subjects. Gender differences appear in less than 10% of the studies and are significant but negligible in magnitude once all the data are pooled. Results are confirmed by structural estimations, which also support a constant relative risk aversion representation of preferences. Gender differences correlate with the presence of a safe option and fixed probabilities in the elicitation method.This paper was accepted by John List, behavioral economics.

Comparación de adultos y adolescentes con respecto al alcance de insensibilidad de las curvas de valor: Un método de medición de funcionamiento

The curvature of the value/utility function has been understood, since D. Bernouilli, as the expression of an attitude towards risk. This perspectivewas kept in such influential theories of judgment and decision as Prospect Theory, in both its original and cumulative versions (Kahneman & Tversky, 1979; Tversky & Kahneman, 1992). More recently, dualprocess interpretations of the value function as a mix of affect and deliberation (Hsee & Rottenstreich, 2004) have proposed that function curvature reflects the operation of affect-based evaluations via an affective focus coefficient indexed by “α” (varying between 0 and 1) in the equation v = A αS 1-α (with “v” the subjective value, “A” the intensity of the affective response, and “S” the scope of the stimuli). According to this view, evaluating more hedonic targets results in more curved (scopeinsensitive) functions than evaluating instrumental/utilitarian targets, and more affect-oriented subjects exhibit more pronounced curvatures (lower 1α) than deliberation-oriented subjects. These predictions are evaluated in this study and additionally used for an exploratory evaluation of Reyna and Farley’s (2006, 2007) proposal that analytical processing and gist/affect-based processing predominate, respectively, in adolescents’ and in adults’ judgment and decision making. Information Integration Theory was used to establish a model allowing for the functional measurement of subjective value at the (ratio) level required for comparing curvature parameters and computing Loss Aversion coefficients. The outcomes partially favored the prediction of larger curvatures (lower 1- α) and larger loss aversion in more hedonic tasks. However, they did not support the prediction of more scope insensitivity and larger values of loss aversion in adults than in adolescents. As the main suggested difference between adults and adolescents, individual differences in risk attitude appeared to be less polarized towards loss aversion among adolescents in more hedonic tasks.

Analysis of Disaster Risk Attitudes in Situation Awareness

Most research on disaster use a social vulnerability approach. Social vulnerability to disaster is dynamic process that is rooted in culture, gender, ethnicity, age and other power relationships. This assumes that disasters are effects of human constructs due to their use of natural and built environments. Disaster risk is socially distributed in ways that reflect social divisions existing in society. Hence, our study investigated the effects of cultural groups and gender on risk attitudes for two types of disasters, namely natural and human-induced disasters. Risk attitude in this study is a summative of five components: risk identification, cognition, affect, trust and behavior. There were significant differences in risk attitudes between cultural groups, namely, Malaysian and Indonesian, and genders at three levels of situation awareness: perception, comprehension and projection. In addition, the study revealed utility of using attitudes and experience of disasters in psycho-cultural analysis of social vulnerabilities.

Gender differences in risk attitudes

Many experimental studies and surveys have shown that women consistently display more risk-averse behavior than men when confronted with decisions involving risk. These differences in risk preferences, when combined with gender differences in other behavioral traits, such as fondness for competition, have been used to explain important phenomena in labor and financial markets. Recent evidence has challenged this consensus, however, finding gender differences in risk attitudes to be smaller than previously thought and showing greater heterogeneity of results depending on the method used to measure risk aversion.

The gender difference in the value of winning

We design an all-pay auction experiment in which we reveal the gender of the opponent. Using this design, we find that women bid higher than men, but only when bidding against other women. These findings, interpreted through a theoretical model incorporating differences in risk attitude and the value of winning, suggest that women have a higher value of winning than men.

The Gender Difference in the Value of Winning

We design an all-pay auction experiment in which we reveal the gender of the opponent. Using this design, we find that women bid higher than men, but only when bidding against other women. These findings, interpreted through a theoretical model incorporating differences in risk attitude and the value of winning, suggest that women have a higher value of winning than men.

Cognitive (ir)reflection: New experimental evidence

We study how cognitive abilities correlate with behavioral choices by collecting evidence from almost 1200 subjects across eight experimental projects concerning a wide variety of tasks, including some classic risk and social preference elicitation protocols. The Cognitive Reflection Test (CRT) has been administered to all our experimental subjects, which makes our dataset one of the largest in the literature. We partition our subject pool into three groups depending on their CRT performance. Reflective subjects are those answering at least two of the three CRT questions correctly. Impulsive subjects are those who are unable to suppress the instinctive impulse to follow the intuitive – although incorrect – answer in at least two 2 questions. The remaining subjects form a residual group. We find that females score significantly less than males in the CRT and that, in their wrong answers, impulsive ones are observed more frequently. The 2D:4D ratio, which is higher for females, is correlated negatively with subjects’ CRT score. We also find that differences in risk attitudes across CRT groups crucially depend on the elicitation task. Finally, impulsive subjects have higher social (inequity-averse) concerns, while reflective subjects are more likely to satisfy basic consistency requirements in lottery choices.

A Utility-Based Explanation of Tax Asymmetries

This article develops a utility-based explanation for the existence of an asymmetric tax treatment of gains and losses when investors are loss averse. We find that loss offset rules should be more restrictive for investors which are (1) more risk averse in case of gains, (2) less risk seeking in case of losses, or (3) more loss averse. Our findings have important policy implications. Tax authorities often implement identical loss offset rules for different investor clienteles. However, when designing loss offset rules, tax authorities should take into account differences in risk attitude and loss aversion across different groups of investors.

Conflicting risk attitudes

This paper examines whether differences in individual risk attitudes are related to interpersonal conflict. In more than thirty villages of rural Uganda, we conduct a social survey to document social links between pairs of individuals within a village, and separately elicit individual risk attitudes using an incentivized task. Our findings reveal that the difference in risk attitudes between two individuals is significantly and positively related to the presence of interpersonal conflict between them. This relationship is particularly strong among kin. By contrast, the strength of risk aversion per se is not related to conflict. Further, we conduct simulations that suggest that the relationship cannot be solely explained by diverging attitudes after the severing of social ties as a result of interpersonal conflict.