Risk Attitude in Real Decision Problems

Fabrizio Botti, LUISS Guido Carli Rome
Anna Conte, University of Rome I "La Sapienza", University of Rome II "Tor Vergata" and LUISS Guido Carli Rome
Daniela Teresa Di Cagno, LUISS Guido Carli Rome
Carlo D'Ippoliti, University of Rome I "La Sapienza" and LUISS Guido Carli Rome

A BEJEAP Advances article.

Abstract

We use data from 298 showings of the television program "Affari Tuoi," which involves contestants making decisions between risky prospects with possible prizes of up to half a million euros, to estimate three models of decision-making under risk: Expected Utility, Rank-Dependent Expected Utility and Regret-Rejoice. We find that Regret-Rejoice does not significantly improve upon Expected Utility, while Rank-Dependent outperforms it. Interestingly, we find that the CARA specification fits significantly better than the conventionally-adopted CRRA specification. Crucially, we find a significant role for unobserved heterogeneity, implying that our estimates provide more superior estimates of risk attitude and of probability weighting than other studies.

Submitted: May 15, 2007 · Accepted: February 11, 2008 · Published: March 6, 2008

Recommended Citation

Botti, Fabrizio; Conte, Anna; Di Cagno, Daniela Teresa; and D'Ippoliti, Carlo (2008) "Risk Attitude in Real Decision Problems," The B.E. Journal of Economic Analysis & Policy: Vol. 8 : Iss. 1 (Advances), Article 6.
Available at: http://www.bepress.com/bejeap/vol8/iss1/art6

 
 
 
 

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