Title

Risk breeds risk aversion

Document Type

Journal article

Source Publication

Experimental Economics

Publication Date

1-1-2017

Volume

Advance publication

First Page

1

Last Page

21

Publisher

Springer New York LLC

Keywords

Laboratory experiment, Risk, Risk aversion

Abstract

We examine whether exposure to a more or less risky environment affects people’s subsequent risk-taking behavior. In a laboratory setting, all subjects went through twelve rounds of multiple-price-list decisions between a risky alternative and a safe alternative. In the first six rounds, subjects were randomly assigned to a high-, moderate-, or low-risk environment, which differed in the variances of the lotteries they were exposed to. In the last six rounds, subjects in all treatments made decisions on an identical set of lotteries. We found that subjects who had experienced a riskier environment exhibited a higher degree of risk aversion. Our experimental design allows us to conclude that this effect is driven by the risk environment per se, rather than the realized outcomes of the risk. This finding has important theoretical and policy implications.

DOI

10.1007/s10683-017-9553-0

Print ISSN

13864157

E-ISSN

15736938

Publisher Statement

Copyright © 2017 Economic Science Association. Access to external full text or publisher's version may require subscription.

Additional Information

Earlier versions of this paper were circulated under the titles of “Exposure to Risk and Risk Aversion: A Laboratory Experiment” and “Bigger Risk, More Risk Aversion: Experimental Evidence”.

Full-text Version

Publisher’s Version

Language

English

Recommended Citation

He, T.-S., & Hong, F. (2017). Risk breeds risk aversion. Experimental Economics, Advance publication, 1-21. doi: 10.1007/s10683-017-9553-0

Share

COinS