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American Economic Review Vol. 101 No. 2 2011

Heterogeneity in Risky Choice Behavior in a Broad Population

Hans-Martin von Gaudecker1; Arthur van Soest2; Erik Wengström3

1 Department of Economics, Universität Mannheim, L7 3-5, 68131 Mannheim, Germany. · 2 Netspar, Tilburg University, P.O. Box 90153, NL-5000 LE Tilburg, Netherlands. · 3 Department of Economics, Lund University, P.O. Box 7082, S-220 07 Lund, Sweden, and Department of Economics, University of Copenhagen.

Abstract

We analyze risk preferences using an experiment with real incentives in a representative sample of 1,422 Dutch respondents. Our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics: utility curvature, loss aversion, preferences toward the timing of uncertainty resolution, and the propensity to choose randomly rather than on the basis of preferences. We find that all four parameters contribute to explaining choice behavior. The structural parameters are significantly associated with socioeconomic variables, but it is essential to incorporate unobserved heterogeneity in each of them to match the rich variety of choice patterns in the data.

DOI
10.1257/aer.101.2.664
Volume
101
Issue
2
Pages
664-694
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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