Article

Individual Risk Attitudes: Measurement, Determinants, And Behavioral Consequences

Journal of the European Economic Association (Impact Factor: 1.36). 05/2011; 9(3):522-550. DOI: 10.1111/j.1542-4774.2011.01015.x
Source: RePEc

ABSTRACT

This paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects' homes. Using a question asking people about their willingness to take risks “in general”, we find that gender, age, height, and parental background have an economically significant impact on willingness to take risks. The experiment confirms the behavioral validity of this measure, using paid lottery choices. Turning to other questions about risk attitudes in specific contexts, we find similar results on the determinants of risk attitudes, and also shed light on the deeper question of stability of risk attitudes across contexts. We conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks, occupational choice, and smoking. The question about risk taking in general generates the best all-round predictor of risky behavior.

Download full-text

Full-text

Available from: Armin Falk
    • "Hartog et al. 2003); • Combined survey-based and experiment-based analyses (e.g. Dohmen et al. 2011). "
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper offers a new perspective on urban innovation and enters the debate on the contribution of non-material growth-enhancing factors to the socio-economic performance of cities. Because of the often widespread availability of “hard” production factors, most cities increasingly compete for attracting non-material production factors whose role, in light of the more widespread diffusion of physical production factors, may ultimately determine their long-run economic success. Against this background, our paper focuses on a relatively neglected non-material factor, viz. urban risk attitude. In fact, cities offer the competitive and challenging environment where individual characteristics of actors may enjoy their highest returns; risk-loving and innovative individuals may sort in large urban agglomerations. The paper tests whether cities attracting such individuals and, thus, enjoying a more positive and open attitude towards risk, tend to innovate more. The empirical analysis of the paper is based on the most recent (2008/2009) wave of the European Values Study. Micro- data on about 80,000 individuals located in different EU urban areas are used to calculate city-specific attitudes towards risk that go beyond individual characteristics. This city-level risk attitude variable is then used within a knowledge production function approach, as an explanatory variable for urban innovation (patent applications to the European Patent Office) along with more traditional knowledge determinants (human capital and R&D expenditures). Our empirical results show that cities with a more open and positive attitude towards risk ceteris paribus also tend to be more innovative. In addition, we find that, unlike traditional knowledge production factors, this factor faces no decreasing returns. While further research might be beneficial in order to more precisely pinpoint the extent of such effects, our findings appear to be robust and suggest a positive role for the urban attitude towards risky endeavours in explaining urban innovation.
    No preview · Article · Dec 2015 · The Annals of Regional Science
  • Source
    • "We also considered a number of demographic variables from the survey, including age and gender, education, marital status , parental status, and current occupational status. These variables represent (a) important indicators of human capital and (b) life-cycle phases that have been hypothesized to influence risk taking (Dohmen et al., 2011; Wilson & Daly, 1985). "
    [Show abstract] [Hide abstract]
    ABSTRACT: Past empirical work suggests that aging is associated with decreases in risk taking. But are such effects universal? Life-history theory suggests that the link between age and risk taking is a function of specific reproductive strategies that can be more or less risky depending on the ecology. We assessed variation in the age-risk curve using World Values Survey data from 77 countries (N = 147,118). The results suggest that propensity for risk taking tends to decline across the life span in the vast majority of countries. In addition, there is systematic variation among countries: Countries in which hardship (e.g., high infant mortality) is higher are characterized by higher levels of risk taking and flatter age-risk curves. These findings suggest that hardship may function as a cue to guide life-history strategies. Age-risk relations thus cannot be understood without reference to the demands and affordances of the environment.
    Full-text · Article · Oct 2015 · Psychological Science
    • "). Alternatively to the SCF question, Kapteyn and Teppa (2002) use the answers to the self-assessed risk question in the questionnaire submitted to the panel of CentERdata in the Netherlands, while Dohmen et al. (2009) make use of the German Socio-Economic Panel (SOEP) for the same purpose. Roszkowski and Grable (2005) employ clients' self-ratings to test the degree of accuracy financial advisors and clients have in estimating risk tolerance. "
    [Show abstract] [Hide abstract]
    ABSTRACT: Investors’ financial risk tolerance is crucial in the formulation of suitable financial advice; in the past, assessment efforts relied on multiple approaches and techniques but their consistency is still an issue. We focus on two metrics traditionally proposed (self-assessment and portfolio composition) and we test their mutual consistency on a sample of 2,374 investors. Our approach allows us to discriminate between inconsistencies due to wrong portfolio compositions and those arising from wrong self-assessments. We show that low financial literacy, high income, no children and incautious economic behavior are commonly associated with such inconsistencies.
    No preview · Article · Sep 2015 · Journal of Behavioral Finance
Show more