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The predictive power of risk elicitation tasks


Garagnani, Michele (2020). The predictive power of risk elicitation tasks. Department of Economics Working Paper Series 362, University of Zurich.

Abstract

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.

Abstract

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.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C91, D81, C83
Uncontrolled Keywords:Risk preferences, elicitation methods, budget sets, portfolio choices
Language:English
Date:September 2020
Deposited On:25 Sep 2020 12:42
Last Modified:25 Sep 2020 12:42
Series Name:Department of Economics Working Paper Series
Number of Pages:22
ISSN:1664-7041
Additional Information:1664-705X (E)
OA Status:Green
Free access at:Official URL. An embargo period may apply.
Official URL:https://www.econ.uzh.ch/en/research/workingpapers.html?paper-id=1044

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