Schedule - Parallel Session 1 - Risk Attitudes 1

IDL First Floor Syndicate Room - 11:00 - 12:30

Is Risk-Taking Propensity a Reliable Personality Trait? Evidence from Large-Scale, Longitudinal Study

Rui Mata; Anika Josef; David Richter; Gregory Samanez-Larkin; Gert Wagner; Ralph Hertwig


Can risk-taking propensity be thought of as a trait that captures individual differences across domains, measures, and time? Studying stability in risk-taking propensities across the lifespan can help to answer such questions by uncovering parallel, or divergent, trajectories across domains and measures. We make a unique and seminal contribution to this effort by examining longitudinal changes in general and domain-specific risk taking. Specifically, we use data from respondents aged 18 to 85 in the German Socio-Economic Panel Study (SOEP) and by examining (1) differential (rank-order) stability, (2) mean-level differences, and (3) individual-level changes in self-reported general (N = 44,076) and domain-specific (N =11,903) risk-taking propensities across adulthood. In addition, we investigate (4) the correspondence between cross-sectional trajectories of self-report and behavioral measures of social (trust game; N = 646) and nonsocial (monetary gamble; N = 433) risk taking. The results suggest that risk-taking propensity can be understood as a trait with moderate rank-order stability. Nevertheless, results show reliable mean-level differences across the lifespan, with risk-taking propensities typically decreasing with age, although significant variation emerges across domains and individuals. For example, while risk taking seems to decrease across the life span in recreational and financial domains, it remains relative constant in the social domain. Interestingly, the mean-level trajectory for behavioral measures of social and nonsocial risk taking was similar to those obtained from self-reported risk, despite small correlations between task behavior and self-reports. Individual-level analyses suggest a link between changes in risk-taking propensities both across domains and in relation to changes in some of the Big Five personality traits, albeit no significant relation to other variables, such as income. Overall, these results raise important questions concerning the role of common processes or events that shape the lifespan development of risk-taking across domains as well as other major personality facets, while questioning the importance of other factors in determining individual and age differences in risk taking that are typically emphasised by economists, such as wealth.

Rui Mata

Assistant Professor, University of Basel

Exploring the Consistency of Higher-Order Risk Preferences

Thomas Mayrhofer; Alexander Haering; Timo Heinrich


Over the course of the last decades it turned out that risk preferences are only captured partially by the concept of risk aversion. Higher-order risk preferences like prudence (Kimball, 1990) and temperance (Kimball, 1992) also impact decisions made by individuals when facing uncertainty. Higher-order risk preferences have been studied in a small number of experiments so far (for an overview see Noussair et al., 2014). These studies reveal that a majority of people is not only risk-averse, but also prudent and temperate. In a recent laboratory experiment, Deck and Schlesinger (2014) “hereafter D&S “test the hy-pothesis that risky choices can be explained either by a lottery preference for combining “good” with “bad” or for combining “good” with “good” (see Crainich et al., 2013). The former implies mixed risk-averse behavior, the latter mixed risk-loving behavior. Both types differ in their pref-erences for lotteries of even orders but coincide for odd orders. In line with their hypothesis, D&S in fact observe a consistent pattern of behavior with US-American subjects: Risk averters tend to be temperate (order 4) and risk-apportionate of order 6 while risk lovers tend to choose in the opposite way. Furthermore, both types exhibit prudent (order 3) and edgy (order 5) behavior. We build on the analysis by D&S and explore the consistency of higher-order risk preferences with regards to (A) cross-country differences, (B) differences in stake size, and (C) differences through displaying reduced rather than compound lotteries. We use the elicitation method intro-duced by D&S and conducted a series of economic laboratory experiments in China, Germany, and the US with a total of 605 subjects. In short, subjects faced a total of 38 tasks in randomized order one of which was randomly selected for payment. In each task subjects had to choose be-tween two lotteries which revealed there risk preference up to the 6th order. In order to investigate the effects of the stake size, we increased the payoff by a factor of ten for some of the Chinese subjects. In order to investigate the effect of reducing compound lotteries on choices, we ran ad-ditional sessions in Germany where the participants faced order 1 and order 2 lotteries in original (compound) form plus two additional orders in compound as well as in reduced form. We replicate the finding of mixed risk-averse and mixed risk-loving behavior by D&S in the US and identify a similar pattern in Germany and in China. Moreover, we observe an increase in risk aversion when stakes are increased tenfold. We also observe the pattern of mixed risk-averse and mixed risk-loving behavior with high stakes. Finally, we observe that subjects choose the prudent and temperate options less often when they are displayed in a reduced rather than compound form. In the reduced lotteries there is weak evidence that subjects behave generally prudent and no evidence that they are generally temperate.

Experimental Evidence About Local Adaptation to Background Risk

Marc Willinger; Charlotte Faurie; Clément Mettling; Mohammed Ali Bchir; Danang Sri Hadmoko; Michel Raymond


Recent experiments on risk-taking found that most student-subjects are risk-vulnerable (Beaud & Willinger, 2015) in support of the risk-vulnerability (RV) hypothesis. According to the RV hypothesis, individuals who are exposed to an unfavourable background risk take less risk than individuals who are unexposed to such risk. RV might also prevail outside the lab, i.e. most people may treat independent risks as substitutes rather than as complements (Gollier & Pratt, 1996). We provide new field evidence about the RV hypothesis by eliciting risk preferences of respondents who are exposed to an active volcanic background risk, in an area where eruptions frequently arise (nearly every 5 years on average over the last centuries). We elicited risk-aversion on the basis of a simple portfolio choice task (Gneezy & Potters, 1997) for which the respondents had to allocate their endowment between a safe and a risky asset. We also asked respondents to provide (on a voluntary basis) a saliva sample which was used to identify an eventual local genetic adaptation to the risky area. Specifically, we focus on the dopamine receptor gene (DRD4) associated with attitude toward risk. The experiment was replicated in a “safe” area which we use as a control. Humans have colonized extremely diverse environments, in which genes specifically adapted to these environments are most likely to have evolved. These genes could be adapted to the physical environment through a permanent physiological change, e.g. high altitude adaptation (Beall, 2006; Yi et al. 2010). Alternatively, a behavioural change “often expressed in specific contexts” could also trigger local adaptation. There are numerous genes known to influence behaviours, such as alleles at the dopamine receptor locus D4 (DRD4) associated with the attitude toward risk in experimental settings (Dreber et al., 2009). Yet, no selection acting on such genes has been described so far. We demonstrate the existence of a local adaptation in natural environments with a sharp variability in background risk: the surroundings of Mount Merapi, an active volcano of Central Java (Indonesia). We found that in the exposed area the ancestral and major DRD4 allele 4R is at a lower frequency and the minor 2R allele at a higher frequency as compared to the close-by non-risky area, while we found no genetic differentiation for 5 microsatellite loci. Behavioural tests confirmed that individual genotypic composition at the DRD4 locus is linked to experimentally measured risk tolerance. This is the first evidence in humans that local adaptation occurred for a behavioural trait with a genetic basis.

Marc Willinger

Professor, University of Montpellier

When Are Severe Outcomes More Probable? – Role of Base Rate

Eglė Butt; Miroslav Sirotab; Marie Juanchichb; Gaëlle Vallée-Tourangeaua


Communicating risk of uncertain outcomes (e.g., court sentence) often involves probabilities. People prefer to receive probabilistic information numerically (e.g., there is 70% chance that your case will not end in your favour), but they prefer to express it verbally (e.g., it is likely that your case will not end in your favour) (Erev & Cohen, 1990). Consequential decisions (e.g., should I take the plea bargain?) thus require an adequate interpretation of verbal probabilities. Some research suggests that severe outcomes trigger higher probability estimates (Harris & Corner, 2011) whereas other line of research suggests that higher base rates inflate probability (Fisher & Jungermann, 1996). A critical challenge in risk perception research is that severity and base rate are natural confounds. To draw any robust conclusions about the severity bias we need to test the effect of outcome severity while also controlling for its base rate.

In three experiments we tested how severity and base rate of a court sentence may influence the perceived probability of suspect’s conviction. In a 2(base rate: low vs. high) × 2(severity: low vs. high) between-subjects design, we manipulated base rate by describing the sentencing in similar cases as low or high and severity by describing the corresponding sentences as mild or severe. Participants then provided a numerical estimate for the lawyer’s statement: “it is possible that you will be convicted”.

The effect of severity on probability was not moderated by base rate in Experiment 1 (β3 = -.53, p = .94, 95% CI [-13.62, 12.57]) nor in Experiment 2 (β3 = -5.85, p = .25, 95% CI [-15.94, 4.24]), but it was moderated by base rate in Experiment 3 (β3 = -13.03, p = .03, 95% CI [-24.83, -1.24]). Conditional effects confirmed that the severity effect occurred at low levels of base rate (β = 10.66, p = .01, 95% CI [2.13, 19.19]). When meta-analysed, we found a significant severity effect in a low base rate condition (g = 0.29, p = .03, 95% CI [.04, .53]) and non-significant severity effect in a high base rate condition (g = -.03, p = .77, 95% CI [-.26, .19]). Moderated meta-analysis of the three experiments showed that the overall moderation effect of base rate was not significant (QM (df = 1) = 3.75, p = .05).

In three experiments we showed that participants were not susceptible to the severity bias when estimating risk of uncertain events. Instead they used base rate as a primary tool for their judgment. Experiments 1 and 2 showed that the severity effect on probability perception was independent of base rate, whereas Experiment 3 showed that the severity effect occurred at low levels of base rate. Moderated meta-analysis model of the three experiments reached marginal significance, suggesting that the severity bias may emerge at low levels of base rate. These findings lend support to the asymmetric loss function account (Weber, 1994), but offer to re-examine the assumption that the severity bias occurs independent of its base rate.

Eglė Butt

Student, Kingston