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Risk aversion when gains are likely and unlikely: evidence from a natural experiment with large stakes


Blavatskyy, Pavlo R; Pogrebna, Ganna (2008). Risk aversion when gains are likely and unlikely: evidence from a natural experiment with large stakes. Theory and Decision, 64(2-3):395-420.

Abstract

In the television show Deal or No Deal a contestant is endowed with a sealed box, which potentially contains a large monetary prize. In the course of the show the contestant learns more information about the distribution of possible monetary prizes inside her box. Consider two groups of contestants, who learned that the chances of their boxes containing a large prize are 20% and 80% correspondingly. Contestants in both groups receive qualitatively similar price offers for selling the content of their boxes. If contestants are less risk averse when facing unlikely gains, the price offer is likely to be more frequently rejected in the first group than in the second group. However, the fraction of rejections is virtually identical across two groups. Thus, contestants appear to have identical risk attitudes over (large) gains of low and high probability.

In the television show Deal or No Deal a contestant is endowed with a sealed box, which potentially contains a large monetary prize. In the course of the show the contestant learns more information about the distribution of possible monetary prizes inside her box. Consider two groups of contestants, who learned that the chances of their boxes containing a large prize are 20% and 80% correspondingly. Contestants in both groups receive qualitatively similar price offers for selling the content of their boxes. If contestants are less risk averse when facing unlikely gains, the price offer is likely to be more frequently rejected in the first group than in the second group. However, the fraction of rejections is virtually identical across two groups. Thus, contestants appear to have identical risk attitudes over (large) gains of low and high probability.

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8 citations in Web of Science®
11 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:March 2008
Deposited On:08 Apr 2008 09:36
Last Modified:05 Apr 2016 12:22
Publisher:Springer
ISSN:0040-5833
Additional Information:The original publication is available at www.springerlink.com
Publisher DOI:10.1007/s11238-007-9056-0
Permanent URL: http://doi.org/10.5167/uzh-2322

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