Are risk preferences stable? Comparing an experimental measure with a validated survey-based measure

Abstract

We examine the stability of risk preference within subjects by comparing measures obtained from two elicitation methods, an economics experiment with real monetary rewards and a survey with questions on hypothetical gambles. The survey questions have been validated by numerous empirical studies of investment, insurance demand, smoking and alcohol use, and recent studies have shown the experimental measure is associated with several real-world risky behaviors. For the majority of subjects, we find that risk preferences are not stable across elicitation methods. In interval regression models subjects' risk preference classifications from survey questions on job-based gambles are not associated with risk preference estimates from the experiment. However, we find that risk classifications from inheritance-based gambles are significantly associated with the experimental measure. We identify some subjects for whom risk preference estimates are more strongly correlated across elicitation methods, suggesting that unobserved subject traits like comprehension or effort influence risk preference stability.Keywords Risk preferences . Laboratory experiment . Survey JEL Classification C9 . D8Do individuals respond to risk in a consistent manner? A growing literature has examined whether individual-level risk preference varies with incentives (e.g., Camerer and Hogarth 1999), implementation mode (e.g., von Gaudecker et al. 2008), or over time (e.g., Andersen et al. 2008. These studies raise intriguing questions for economic theories of choice under uncertainty and public policies based on assumptions about the public's degree of risk. The present study examines the consistency of risk preference measures by comparing subject choices in the Holt

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“…However, there is no clear-cut evidence that real incentives generate different results than hypothetical incentives (Abdellaoui et al, 2011;Anderson and Mellor, 2009;Beattie and Loomes, 1997), only that they may reduce noise (Camerer and Hogarth, 1999).…”

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