The Recovery of Risk Preferences from Actual Choices

Abstract

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Estimating Risk Preferences in the Field

“…In an early paper, Wolf and Pohlman (1983) compare the risk preferences of a single person-a dealer in US government securitiesin two contexts; a hypothetical gambling context and an actual investment context. For both cases, they assume that the dealer is an EU maximizer with HARA utility.…”

Health insurance: The tradeoff between risk pooling and moral hazard

“…Studies in both the marketing and economic literature offer some indirect evidence that stated preferences do predict actual behavior (see, for example, Granbois and Summers [19751;Wolf and Pohlman [1983]). Split-sample comparisons show the predictive validity of responses about hypothetical health insurance plan offers (Hershey et al, 1985).…”

Different Contexts, Different Risk Preferences?

“…In an early paper, Wolf and Pohlman (1983) compare the risk aversion of a dealer in U.S. government securities as …rst measured by his assessments of hypothetical wealth gambles and then estimated from his bid choices in Treasury bill auctions. The authors take a structural approach and assume the dealer is an expected utility (EU) maximizer.…”

“…Though pioneering, Wolf and Pohlman (1983) has two important limitations. First, it studies one person.…”