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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 (2006). Risk Aversion When Gains Are Likely and Unlikely: Evidence from a Natural Experiment with Large Stakes. Working paper series / Institute for Empirical Research in Economics No. 278, University of Zurich.

Abstract

In the television show Affari Tuoi a contestant is endowed with a sealed box containing anmonetary prize between one cent and half a million euros. 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. Ifncontestants are less risk averse when facing unlikely gains, the price offer is likely to benmore 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 tonhave identical risk attitudes over (large) gains of low and high probability.

In the television show Affari Tuoi a contestant is endowed with a sealed box containing anmonetary prize between one cent and half a million euros. 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. Ifncontestants are less risk averse when facing unlikely gains, the price offer is likely to benmore 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 tonhave identical risk attitudes over (large) gains of low and high probability.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:April 2006
Deposited On:29 Nov 2011 22:47
Last Modified:05 Apr 2016 15:11
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html
Permanent URL: https://doi.org/10.5167/uzh-52235

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