Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey

Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey

September 2005 | Thomas Dohmen, Armin Falk, David Huffman, Uwe Sunde, Jürgen Schupp, Gert G. Wagner
This paper presents new evidence on the distribution of risk attitudes in the population using a large, representative sample of 22,000 individuals in Germany. The study uses a novel set of survey questions and a representative sample to measure willingness to take risks, and finds that willingness to take risks is negatively related to age and being female, and positively related to height and parental education. The study also conducts a complementary field experiment with 450 subjects to test the behavioral relevance of the survey measure, finding that it is a good predictor of actual risk-taking behavior. The study also uses a more standard lottery question to measure risk preference and finds similar results regarding heterogeneity and determinants of risk preferences. The lottery question allows for the estimation of the coefficient of relative risk aversion for each individual. The study also examines the impact of context on risk attitudes, finding a strong but imperfect correlation across contexts. The study compares the predictive power of different risk measures and finds that the general risk question predicts all behaviors, while the standard lottery measure does not. The best predictor for any specific behavior is typically the context-specific measure. These findings challenge the current focus on lottery measures of risk preference and highlight the importance of variation in risk perceptions as an understudied determinant of risky behavior. The study also finds that women are less willing to take risks than men, that increasing age is associated with decreasing willingness to take risks, that taller individuals are more willing to take risks, and that individuals with highly-educated parents are more willing to take risks. The study also finds that the general risk question is a good predictor of actual risk-taking behavior in the field experiment. The study concludes that the general risk question is the best all-around measure of risk attitudes.This paper presents new evidence on the distribution of risk attitudes in the population using a large, representative sample of 22,000 individuals in Germany. The study uses a novel set of survey questions and a representative sample to measure willingness to take risks, and finds that willingness to take risks is negatively related to age and being female, and positively related to height and parental education. The study also conducts a complementary field experiment with 450 subjects to test the behavioral relevance of the survey measure, finding that it is a good predictor of actual risk-taking behavior. The study also uses a more standard lottery question to measure risk preference and finds similar results regarding heterogeneity and determinants of risk preferences. The lottery question allows for the estimation of the coefficient of relative risk aversion for each individual. The study also examines the impact of context on risk attitudes, finding a strong but imperfect correlation across contexts. The study compares the predictive power of different risk measures and finds that the general risk question predicts all behaviors, while the standard lottery measure does not. The best predictor for any specific behavior is typically the context-specific measure. These findings challenge the current focus on lottery measures of risk preference and highlight the importance of variation in risk perceptions as an understudied determinant of risky behavior. The study also finds that women are less willing to take risks than men, that increasing age is associated with decreasing willingness to take risks, that taller individuals are more willing to take risks, and that individuals with highly-educated parents are more willing to take risks. The study also finds that the general risk question is a good predictor of actual risk-taking behavior in the field experiment. The study concludes that the general risk question is the best all-around measure of risk attitudes.
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