Risk Elicitation Task Research Articles

The Impact of Risk Aversion and Migrant Work Experience on Farmers’ Entrepreneurship: Evidence from China

Investing in entrepreneurship may be costly, and therefore risky, and entrepreneurship is also an economic endeavor that is highly dependent on entrepreneurial ability and risk appetite. In this study, data from 669 famers in southwest China were used as the sample, and we used three different methods to measure farmers’ risk aversion level, including DOSPRET (Domain-Specific Risk-Taking), SOEP (Simple Self-Report), and BRET (Bomb Risk Elicitation Task). This paper studies the impact of farmers’ risk aversion on entrepreneurial choices and the moderating impact of the migrant work experience (MWE) on the relationship between risk aversion and entrepreneurship. The results can be summarized as follows: Firstly, entrepreneurial farmers have lower average levels of risk aversion than non-entrepreneurial farmers. Secondly, risk aversion has a significant negative impact on farmers’ choice of entrepreneurship, corporate entrepreneurship and portfolio entrepreneurship. Thirdly, MWE can reduces the negative impact of risk aversion on a decision to enter entrepreneurship or portfolio entrepreneurship. Fourth, MWE in local or nearby areas reduces the negative effects of risk aversion on entrepreneurship and portfolio entrepreneurship, while MWE in coastal and developed cities increases the negative effects.

Repeated experience and consistent risk preferences

Economists have developed various methods to elicit risk preferences, which can help forecast decision-making in risky scenarios. However, risk elicitation can be complex, and there remain unresolved challenges. Our research demonstrates that repeated exposure to risk elicitation tasks, such as the Holt-Laury and Eckel-Grossman tasks, results in individuals making more consistent decisions with less noise. This suggests that measuring risk preferences after individuals have gained experience and learning can yield more consistent outcomes and provide a more accurate representation of individual risk preferences.

Contextual framing effects on risk aversion assessed using the bomb risk elicitation task

We examine the impact of framing on individuals’ risk-taking behavior in the context of health risks during the coronavirus outbreak. We elicit risk attitudes from a sample of 3385 individuals across seven European countries using an incentivized decision-making task. Participants are randomly assigned to one of three versions of the task: one involving the risk of a bomb explosion, one involving the risk of contracting an infectious disease, and one involving opening an empty box. We find that the framing of the task significantly affects risk-taking behavior, with participants exhibiting greater risk aversion in the health task than in the bomb or neutral task. This framing effect is observed in the majority of the countries studied.

The predictive power of risk elicitation tasks

This work reports the results of two online experiments with a general-population sample examining the performance of different tasks for the elicitation of risk attitudes. First, I compare the investment task of Gneezy and Potters (1997), the standard choice-list method of Holt and Laury (2002), and the multi-alternative procedure of Eckel and Grossman (2002) and evaluate their performance in terms of the number of correctly-predicted binary decisions in a set of out-of-sample lottery choices. There are limited differences between the tasks in this sense, and performance is modest. Second, I included three additional budget-choice tasks (selection of a lottery from a linear budget set) where optimal decisions should have been corner solutions, and find that a large majority of participants provided interior solutions instead, casting doubts on people’s understanding of tasks of this type. Finally, I investigate whether these two results depend on cognitive ability, numerical literacy, and education. While optimal choices in budget-choice tasks are related to numerical literacy and cognitive ability, the predictive performance of the risk-elicitation tasks is unaffected.

Unawareness and risk taking: The role of context

We study the effects of exposure to unawareness on risk preferences using a novel experimental task. The task has solutions that are difficult to find, but easy to verify and so exposes subjects to unawareness in a natural way. We find that increased exposure to unawareness alone does not affect risk taking. The role of context, however, is shown to be important. For treatments inducing higher unawareness, subjects are more risk averse when the risk elicitation task is framed in the same context as the unawareness-inducing task versus framed in a neutral way; we observe no such differences for the control treatment. We propose a novel decision theoretic model that guides the interpretation of the experimental findings. Our results could inform the decision and game-theoretic literatures, as most models of unawareness assume risk preferences are orthogonal to varying awareness.

PC029 / #600 MULTIFOCAL TRANSCRANIAL DIRECT CURRENT STIMULATION ON LEFT DLPFC AND LEFT VLPFC SHOWS A DECREASE IN RISK DECISION-MAKING DEPENDING ON PERSONALITY: TRACK 2: BRAIN STIMULATION

We investigated the effect of applying Multifocal transcranial Direct Current Stimulation (MtDCS) on the left dorsolateral prefrontal cortex (DLPFC) and the left ventrolateral prefrontal cortex (VLPFC) on risk-taking. To do so, we used the balloon analogue risk task (BART) and the bomb risk elicitation task (BRET), considering individual differences.

Does boredom affect economic risk preferences?

AbstractPrevious literature and conventional wisdom have led researchers to believe that boredom increases economic risk taking, but the evidence in support of this conclusion is limited and has important shortcomings. In four experiments (including more than 1,300 subjects), we systematically studied the effects of boredom on economic risk preferences. Across different risk elicitation tasks, boredom inductions, incentive schemes, subject pools, and using both reduced form and structural analyses, we consistently failed to find an effect of boredom on risky decisions. Our results disprove that boredom leads to even small increments in risk taking in one-shot elicitation tasks, and small to medium increases in multiple-choice elicitations. These findings question an important established belief, contribute to better understand the consequences of boredom, and have substantive implications for experiments on economic decision making.

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

In most risk elicitation tasks, lotteries are presented through a verbal description stating the outcomes and their likelihoods (e.g., “Win $5 with probability 10%”, “1 in 10 chance to win $5”), sometimes accompanied by a pictorial representation (a pie chart or bar graph). Literature on risk communication suggests that alternative but supposedly equivalent numeric formats (e.g., percentages vs ratios) and pictorial displays (e.g., continuous vs discrete) may lead to a different perception of risk and concern for it. The present experiment (N = 95) tests for numeric and pictorial framing effects in a multiple price list (MPL), where risk information is presented either as percentages (“10%”) or as ratios (“1 out of 10”) and is accompanied by either two-slice or ten-slice pies. Results show that neither the numeric framing (adopting ratios) nor the pictorial framing (slicing pies) significantly altered per se the average elicited risk aversion. Nonetheless, the pictorial framing significantly reduced the elicited risk aversion for those participants who focused on the probability of the lottery’s high outcome in their decisions.

Investigating inconsistencies in complex lotteries: The role of cognitive skills of low-numeracy subjects

Comprehension in risk elicitation tasks is crucial, as otherwise the results are rather noisy than reliable. One prominent risk-elicitation tool, the Holt and Laury task (HL-task), is particularly prone to a noisy outcome - indicated by high inconsistency levels - when used among low-literacy subjects. Yet, it is unclear what drives inconsistencies. In this note we investigate the HL-task inconsistency levels of 247 smallholder farmers from rural Cambodia. Cognitive skills, measured through Raven’s Progressive Matrices (RPM), are a statistically significant determinant of inconsistency levels. A second step in the analysis reveals that cognitive skills are a statistically significant explanation for inconsistency levels for men, but not for women. Our results suggest that researchers should conduct a comprehensive pre-test when aiming at using abstract risk-elicitation methods among low-numeracy subjects in the field.

Risk preferences and personality traits in children and adolescents

We elicit both risk preferences and personality traits of 340 children aged 7–16 and enrolled in Danish schools: we elicit risk preferences using a modified–and simplified–version of the Bomb Risk Elicitation Task, and to measure personality traits we use the HEXACO (parent-report) questionnaire. Our results show that, on average, children are risk averse, become more risk taking with age, and that girls are, on average, more risk averse than boys. On the contrary, personality traits are stable across ages, except for a slight decrease in Openness to Experience. Personality and risk preferences are not correlated either when looking at raw correlations or regressions, including controls. The results suggest that risk preferences and personality traits are complementary measures of individual heterogeneity of behavior.

Resting-State Theta Oscillations and Reward Sensitivity in Risk Taking.

Females demonstrate greater risk aversion than males on a variety of tasks, but the underlying neurobiological basis is still unclear. We studied how theta (4–7 Hz) oscillations at rest related to three different measures of risk taking. Thirty-five participants (15 females) completed the Bomb Risk Elicitation Task (BRET), which allowed us to measure risk taking during an economic game. The Domain-Specific Risk-Taking Scale (DOSPERT) was used to measure self-assessed risk attitudes as well as reward and punishment sensitivities. In addition, the Barratt Impulsiveness Scale (BIS11) was included to quantify impulsiveness. To obtain measures of frontal theta asymmetry and frontal theta power, we used magnetoencephalography (MEG) acquired prior to task completion, while participants were at rest. Frontal theta asymmetry correlated with average risk taking during the game but only in the female sample. By contrast, frontal theta power correlated with risk taking as well as with measures of reward and punishment sensitivity in the joint sample. Importantly, we showed that reward sensitivity mediated a correlation between risk taking and the power of theta oscillations localized to the anterior cingulate cortex. In addition, we observed significant sex differences in source- and sensor-space theta power, risk taking during the game, and reward sensitivity. Our findings suggest that sensitivity to rewards, associated with resting-state theta oscillations in the anterior cingulate cortex, is a trait that potentially contributes to sex differences in risk taking.

Acute stress does not affect economic behavior in the experimental laboratory

We report statistical results from a laboratory experiment in which participants were required to make decisions with monetary consequences in several solitary and interactive situations under acute stress. Our study follows the tradition of behavioral and experimental economics in selecting the experimental situations and incorporates elements from medical and psychological research in the way stress is induced and measured. It relies on a larger sample, with 192 volunteers, than previous studies to achieve higher statistical power. The main conclusion, drawn from binary comparisons between the treatment and reference groups, is that acute stress does not have a significant impact on cognitive skills, strategic sophistication, risk attitudes, altruism, cooperativeness, or nastiness. Regression analysis, controlling for psycho-social characteristics, corroborates these findings, while also suggesting that acute stress significantly decreases men’s risk aversion (as measured by a lottery-choice risk-elicitation task).

Emotions and decisions in the real world: What can we learn from quasi-field experiments?

Researchers in the social sciences have increasingly studied how emotions influence decision-making. We argue that research on emotions arising naturally in real-world environments is critical for the generalizability of insights in this domain, and therefore to the development of this field. Given this, we argue for the increased use of the “quasi-field experiment” methodology, in which participants make decisions or complete tasks after as-if-random real-world events determine their emotional state. We begin by providing the first critical review of this emerging literature, which shows that real-world events provide emotional shocks that are at least as strong as what can ethically be induced under laboratory conditions. However, we also find that most previous quasi-field experiment studies use statistical techniques that may result in biased estimates. We propose a more statistically-robust approach, and illustrate it using an experiment on negative emotion and risk-taking, in which sports fans completed risk-elicitation tasks immediately after watching a series of NFL games. Overall, we argue that when appropriate statistical methods are used, the quasi-field experiment methodology represents a powerful approach for studying the impact of emotion on decision-making.

Robust inference in risk elicitation tasks

Recent experimental evidence suggests that noisy behavior correlates strongly with personal characteristics. Since decision noise leads to bias in most elicitation tasks, there is a risk of falsely interpreting noise-driven relationships as preference driven. This puts previous studies that found a negative relation between personality measures and risk aversion into perspective and in particular raises the question of how to achieve robust inference in this domain. This paper shows, by way of an economic experiment with subjects from all walks of life, that using structural estimation to model heterogeneity of noise in combination with a balanced design allows us to mitigate the bias problem. Our estimations show that cognitive ability is related to noisy behavior rather than risk preferences. We also find age and education to be strongly related to noise, but the personality characteristics obtained using the Big Five inventory are less related to noise and more robustly correlated to risk preferences.

The Predictive Power of Risk Elicitation Tasks

This work reports an online experiment with a general-population sample examining the performance of budget-choice tasks for elicitation of risk attitudes. First, I compare the investment task of Gneezy and Potters (1997) with the standard choicelist method of Holt and Laury (2002), and evaluate their performance in terms of the number of correctly-predicted binary decisions in a set of out-of-sample lottery choices. There are no significant differences between the tasks in this sense, and performance is modest. Second, I included three additional budget-choice tasks (selection of a lottery from a linear budget set) where optimal decisions should have been corner solutions, and find that a large majority of participants provided interior solutions instead, casting doubts on subjects’ understanding of tasks of this type.

Ready-made oTree apps for time preference elicitation methods

In the realm of time preference elicitation, several different methods to elicit preferences from individual choices and subsequently estimate discounting and utility function parameters have evolved. We provide ready-made oTree (Chen et al., 2016) applications for three of the mostly used elicitation tools in experiments. The first method (CTB — Convex Time Budgets) elicits discounting and utility function curvature jointly from choices over time (Andreoni and Sprenger, 2012; Andreoni et al., 2015). The second method elicits time preferences and utility function curvature using two different tasks and jointly estimating parameters (DMPL — Double Multiple Price List). It is fully nested in our first method and can be complemented via a risk elicitation task by Holzmeister (2017). The third method elicits discounting without eliciting utility (Attema et al., 2016) by measuring discounting without using explicit functional forms for utility. We provide the general theoretical background of the elicitation approaches, experimental designs, as well as a detailed description of our programs. Both programs can be easily and flexibly adapted to the user’s needs, even without any prior programming knowledge in oTree.

Internal and external validity: Comparing two simple risk elicitation tasks

Researchers often need to elicit risk attitudes in field experiments or in laboratory experiments. However, choosing a risk elicitation task can be a source of concern, as risk attitudes have been often shown to vary dramatically across tasks. Using a large sample of approximately 2,000 subjects in a within-subjects design, we compare behavior in two commonly used incentivized risk elicitation tasks – the investment game and the ordered lottery choice game – recognized for their simplicity and ease of implementation. We find that risk attitudes elicited from the two tasks show considerable internal consistency, and importantly, have similar predictive validity for behavior in a different task with built-in uncertainty. We also explore determinants of inconsistency between the two risk tasks.

Intragroup competition in public good games: The role of relative performance incentives and risk attitudes

AbstractWe analyze a public good game (PGG) with intragroup competition in which, generally but not always, the dominant strategy is to not contribute; therefore, free riding is the unique Nash equilibrium, not achieving Pareto efficiency. We propose a PGG setup where subjects' contributions are rewarded with different individual returns following a rank‐order voluntary contribution mechanism. It is found that the resulting competition for a better return significantly increases contributions. This effect is sensitive to the salience of return differences rewarding higher contributions. Furthermore, the positive effect of return differences on contribution levels depends on an individual's return‐to‐risk sensitivity as elicited through an independent risk elicitation task.

Risk Aversion and Information Aggregation in Asset Markets

The paper investigates the relation between the risk preferences of traders and the information aggregation properties of an experimental call market. We find evidence inconsistent with the prediction that market-clearing prices are closer to the full revelation of the state when traders are more risk-averse. The observed pattern of prices is close to the risk-neutral benchmark, while individuals are risk averse both in a risk elicitation task and when estimating their risk aversion from their market activity. This purported conflict is explained by an attitude to exploit only part of the information possessed that we label operational conservatism. We show that operational conservatism represents an additional, although suboptimal, way to express one’s risk aversion. A remarkably consistent picture of measured risk preferences emerges then in our data. Independently-elicited risk attitudes retain the footprint of both the standard and the suboptimal facet of risk aversion estimated from subjects’ market activity.

Can self-assessed risk attitudes predict behavior under risk? Evidence from a field study in China

This paper examines whether the self-assessed risk attitude predicts individual choice under risk in a field study on a sample of more than 200 Chinese farmers. Farmers’ self-assessed risk attitudes are elicited by the widely used German socio-economic panel (SOEP) general risk question. Individual choice in the Bomb Risk Elicitation Task (BRET) is tested. Results show that the self-assessed willingness to take risks is not significantly correlated with the actual choice in the BRET risk experiment.