Exposure to Risk and Risk Aversion: A Laboratory Experiment

Abstract

We examine whether prior exposure to environments with a varying degree of risk affects individuals' risk-taking behavior. Using a laboratory experiment, we find that subjects exposed to a high risk environment exhibit higher levels of risk aversion than those who were exposed to a moderate or low risk environment. This effect is not driven by subjects' realized outcomes from the risk. The finding has implications for theoretical models of decision-making under uncertainty, and can speak to a few current policy debates.

Stability of experimental and survey measures of risk, time, and social preferences: A review and some new results

“…Conte et al (2014) and Matthey and Regner (2013) find that individuals who have participated in experiments in the past behave more selfishly in subsequent experiments. Mengel et al (2015) show that subjects become more risk averse after playing games involving ambiguity rather than games involving pure risk only, and He and Hong (2014) show that subjects become more risk averse after playing games involving higher levels of risk. Cai and Song (2014) find that experiencing more disaster in an insurance game increases uptake of a real insurance product but does not influence risk aversion as measured in a subsequent game.…”