Measuring the time stability of Prospect Theory preferences

Zeisberger, Stefan; Vrecko, Dennis; Langer, Thomas

doi:10.1007/s11238-010-9234-3

Cited by 101 publications

(60 citation statements)

References 53 publications

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“… 5 There are also papers which look at the stability of prospect theory risk preferences including Baucells and Villasís (2010) (141 students over three months, correlation of 0.32), Glöckner and Pachur (2012) (64 students over one week, correlations between 0.22 and 0.59), and Zeisberger et al (2012) (73 German undergraduates over one month). …”

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confidence: 99%

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

Chuang

Schechter

2015

Journal of Development Economics

290

186

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Underlying preferences are often considered to be persistent, and are important inputs into economic models. We first conduct an extensive review of the disparate literature studying the stability of preferences measured in experiments. Then, we test the stability of individuals’ choices in panel data from rural Paraguay over almost a decade. Answers to social preference survey questions are quite stable. Experimental measures of risk, time, and social preferences do not exhibit much stability. Correlations between experimental measures of risk aversion are a more precisely estimated zero, whereas correlations for time and social preferences are larger and noisier. We also find no systematic evidence that real world shocks influence play in games. We suggest that in a developing country context researchers should explore designing simpler experiments and including survey questions in addition to experiments to measure preferences.

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confidence: 99%

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

Chuang

Schechter

2015

Journal of Development Economics

290

186

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“…An equivalent but mirrored conclusion holds for losses. Such collinearity between utility and weighting is indeed unavoidable in structural estimations of prospect theory—see Zeisberger, Vrecko, and Langer () for a discussion.…”

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Risk Taking for Oneself and Others: A Structural Model Approach

et al. 2015

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Copyright remains with the author(s).Discussion papers of the WZB serve to disseminate the research results of work in progress prior to publication to encourage the exchange of ideas and academic debate. Inclusion of a paper in the discussion paper series does not constitute publication and should not limit publication in any other venue. The discussion papers published by the WZB represent the views of the respective author(s) and not of the institute as a whole. We examine situations in which a decision maker decides for another person as well as herself under conditions of payoff equality, and compare such decisions under responsibility to individual decisions. Estimating a structural model we find that responsibility leaves utility curvature unaffected, but accentuates the subjective distortion of very small and very large probabilities for both gains and losses. This results in an accentuation of prospect theory's four-fold pattern of risk preferences under responsibility. In addition, we also find that responsibility reduces loss aversion according to some common definitions of the latter. These results serve to reconcile some of the still largely contradictory findings in the literature on decisions for oneself and others under payoff equality.

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“…for decisions involving health states), or in situations were monetary outcomes are large (making it plausible that the marginal utility of money starts declining). 7 We thus refrained from eliciting utility and probability weighting separately on purpose, given that prospect theory is somewhat cumbersome for regression analysis because of the collinearity in some of its parameters (Zeisberger, Vrecko and Langer, 2012). One can also make a normative argument under prospect theory that utility should be linear for moderate stakes (Wakker, 2010).…”

Section: Non-parametric Representation Of Aggregate Datamentioning

confidence: 99%

Measuring Risk Preferences in Rural Ethiopia: Risk Tolerance and Exogenous Income Proxies

Vieider¹,

Beyene²,

Bluffstone³

et al. 2014

Policy Research Working Papers

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Discussion papers of the WZB serve to disseminate the research results of work in progress prior to publication to encourage the exchange of ideas and academic debate. Inclusion of a paper in the discussion paper series does not constitute publication and should not limit publication in any other venue. The discussion papers published by the WZB represent the views of the respective author(s) and not of the institute as a whole. Terms of use: Documents inWissenschaftszentrum Berlin für Sozialforschung gGmbH Reichpietschufer 50 10785 Berlin Germany www.wzb.eu AbstractMeasuring risk preferences in rural Ethiopia: Risk tolerance and exogenous income proxies by Ferdinand M. Vieider, Abebe Beyene, Randall Bluffstone, Sahan Dissanayake, Zenebe Gebreegziabher, Peter Martinsson and Alemu Mekonnen * Risk aversion has generally been found to decrease in income or wealth. This may lead one to expect that poor countries will be more risk averse than rich countries. Recent comparative findings with students, however, suggest the opposite, giving rise to a riskincome paradox. We test this paradox by measuring the risk preferences of over 500 household heads spread over the highlands of Ethiopia. We do so using certainty equivalents, which have rarely been used in developing countries, but permit us to relate the findings to a host of evidence from the West. We find high degrees of risk tolerance, in agreement with the student comparisons finding higher risk tolerance in poorer countries. We also find risk tolerance to increase in income proxies, thus completing the paradox. We thereby use income proxies that can be considered as exogenous, allowing us to conclude that at least part of the causality must run from income to risk tolerance. We furthermore provide extensive methodological discussions on measuring and estimating risk preferences in development settings.

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Measuring the time stability of Prospect Theory preferences

Cited by 101 publications

References 53 publications

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

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

Risk Taking for Oneself and Others: A Structural Model Approach

Measuring Risk Preferences in Rural Ethiopia: Risk Tolerance and Exogenous Income Proxies

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