The Review of Economics and Statistics Vol. 104 No. 4 2022

The Reflection Effect for Higher-Order Risk Preferences

Han Bleichrodt¹; Paul Van Bruggen²

¹ Erasmus School of Economics and University of Alicante, Department of Economics · ² Tilburg University, Department of Economics

Abstract

Higher-order risk preferences are important determinants of economic behavior. We apply insights from behavioral economics: we measure higher-order risk preferences for pure gains and losses. We find a reflection effect not only for second-order risk preferences, as did Kahneman and Tversky (1979), but also for higher-order risk preferences: we find risk aversion, prudence and intemperance for gains and much more risk-loving preferences, imprudence and temperance for losses. These findings are at odds with a universal preference for combining good with bad or good with good, which previous results suggest may underlie higher-order risk preferences.

DOI

10.1162/rest_a_00980

Volume

104

Issue

4

Pages

705-717

Language

en

Sources

openalex crossref

Cite

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