Abstract
We examine whether exposure to a more or less risky environment affects people’s subsequent risk-taking behavior. In a laboratory setting, all subjects went through twelve rounds of multiple-price-list decisions between a risky alternative and a safe alternative. In the first six rounds, subjects were randomly assigned to a high-, moderate-, or low-risk environment, which differed in the variances of the lotteries they were exposed to. In the last six rounds, subjects in all treatments made decisions on an identical set of lotteries. We found that subjects who had experienced a riskier environment exhibited a higher degree of risk aversion. Our experimental design allows us to conclude that this effect is driven by the risk environment per se, rather than the realized outcomes of the risk. This finding has important theoretical and policy implications.
| Original language | English |
|---|---|
| Pages (from-to) | 815-835 |
| Number of pages | 21 |
| Journal | Experimental Economics |
| Volume | 21 |
| Issue number | 4 |
| Early online date | 17 Nov 2017 |
| DOIs | |
| Publication status | Published - Dec 2018 |
Bibliographical note
Acknowledgements We thank the editor, two referees, Ian Krajbich, Lionel Page, Joseph Tao-yi Wang, Songfa Zhong, seminar and conference participants in Nanyang Technological University, National Cheng-chi University, National Taiwan University, National Tsing-hua University, and the 12th International Conference of Western Economic Association International for helpful comments.Earlier versions of this paper were circulated under the titles of “Exposure to Risk and Risk Aversion: A Laboratory Experiment” and “Bigger Risk, More Risk Aversion: Experimental Evidence”.
Funding
He acknowledges financial support from Nanyang Technological University (HASS Start-up grant).
Keywords
- Laboratory experiment
- Risk
- Risk aversion