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Journal of Risk and Uncertainty
Journal Prestige (SJR): 1.471
Citation Impact (citeScore): 2
Number of Followers: 33  
 
  Hybrid Journal Hybrid journal (It can contain Open Access articles)
ISSN (Print) 1573-0476 - ISSN (Online) 0895-5646
Published by Springer-Verlag Homepage  [2469 journals]
  • Effect of a brief intervention on respondents’ subjective perception of
           time and discount rates

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      Abstract: Abstract Time discounting is a fundamental characteristic of human decision-making. In general, the literature finds that individuals with lower discount rates are more likely to exhibit healthy behaviors such as saving for the future, exercising, acquiring more education and making other decisions that have long-term benefits. Recent evidence suggests there may be at least two pathways by which individual’s underlying behavioral discount rate may be realized: non-linearities in the intertemporal utility function (standard discounting behavior) and non-linearities in the perception of time. We conducted an experiment on Amazon Mechanical Turk (N = 1000) to evaluate whether discount rates could be modified through an educational intervention. In the experiment, the treatment group had to calculate rates of return for a six-month period for a series of investment vehicles with varying rates of returns including a savings account, a bank certificate of deposit, government bond, mutual fund, and mutual sector fund. The results indicate that even one week after treatment, the intervention group’s discount rates were significantly lower than the control group’s discount rates. This has important implications for the possibility of designing interventions to lower individual discount rates.
      PubDate: 2022-08-27
       
  • Individual characteristics associated with risk and time preferences: A
           multi country representative survey

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      Abstract: Abstract This paper empirically analyzes how individual characteristics are associated with risk aversion, loss aversion, time discounting, and present bias. To this end, we conduct a large-scale demographically representative survey across eight European countries. We elicit preferences using incentivized multiple price lists and jointly estimate preference parameters to account for their structural dependencies. Our findings suggest that preferences are linked to a variety of individual characteristics such as age, gender, and income as well as some personal values. We also report evidence on the relationship between cognitive ability and preferences. Incentivization, stake size, and the order of presentation of binary choices matter, underlining the importance of controlling for these factors when eliciting economic preferences.
      PubDate: 2022-08-16
       
  • Chance theory: A separation of riskless and risky utility

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      Abstract: Abstract In a temporal context, sure outcomes may yield higher utility than risky ones as they are available for the execution of plans before the resolution of uncertainty. By observing a disproportionate preference for certainty, empirical research points to a fundamental difference between riskless and risky utility. Chance Theory (CT) accounts for this difference and, in contrast to earlier approaches to separate risky and riskless utility, does not violate basic rationality principles like first-order stochastic dominance or transitivity. CT evaluates the lowest outcome of an act with the riskless utility v and the increments over that outcome, called chances, by subjective expected utility (EU) with a risky utility u. As a consequence of treating sure outcomes differently to risky ones, CT is able to explain the EU-paradoxes of Allais (Econometrica, 21(4): 503–546, 1953) that rely on the certainty effect, and also the critique to EU put forward by Rabin (Econometrica, 68(5): 1281–1292, 2000). Moreover, CT separates risk attitudes in the strong sense, captured entirely by u, from attitude towards wealth reflected solely through the curvature ofv.
      PubDate: 2022-07-27
       
  • Personalized information and willingness to pay for non-financial risk
           prevention: An experiment

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      Abstract: Abstract When receiving personalized rather than population-based information, agents improve their knowledge about their probability of experiencing adverse events (e.g. health shocks). Being revealed as high or low risk, they may revise their willingness to pay (WTP) for prevention programs. If the WTP changes of the high- and low-risk individuals go in opposite directions, the overall impact on the WTP for prevention depends on whether the relationship between WTP and the initial probability of damage is convex or concave. We address this question in a laboratory experiment. Participants received an endowment and were exposed to a non-financial damage—consisting in electrical shocks—with a certain probability. We elicit subjects’ WTP for self-protection and self-insurance, i.e. actions reducing respectively the probability and the number of shocks, using the Becker-DeGroot-Marschak mechanism. Our results suggest that WTP for self-protection is insensitive to the baseline probability to undergo pain, but reveal that WTP for self-insurance increases at a decreasing rate with this probability. This implies that the diffusion of personalized information should reduce the demand for self-insurance programs.
      PubDate: 2022-07-26
       
  • Biased survival expectations and behaviours: Does domain specific
           information matter'

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      Abstract: Abstract We study the formation of biased expectations across domains and examine whether they have a unique influence on health and financial behaviors. Combining individual-level longitudinal, retrospective, and end of life data from several European countries for more than a decade, we estimate the time-varying individual level bias in ‘survival expectations' (BSE) and compare it to a similar type of bias in the formation of ‘meteorological expectations' (BME). We exploit the variation across individual's family history (parental age at death) to evaluate the causal effect of BSE on health and financial behaviors, and we compare it to the effect of BME. This allows to investigate whether the BSE effect is due to private information, or another mechanism. We find that BSE increases the likelihood of engaging in less risky health and financial behaviors. We estimate that a one standard deviation increase in BSE reduces the average individual probability of smoking by 48% (and increase the probability of holding retirement accounts by 69%). In contrast, BME has little effect on healthy behaviors, and is only associated with a change in some financial behaviors.
      PubDate: 2022-07-25
       
  • Risky choice: Probability weighting explains independence axiom violations
           in monkeys

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      Abstract: Abstract Expected Utility Theory (EUT) provides axioms for maximizing utility in risky choice. The Independence Axiom (IA) is its most demanding axiom: preferences between two options should not change when altering both options equally by mixing them with a common gamble. We tested common consequence (CC) and common ratio (CR) violations of the IA over several months in thousands of stochastic choices using a large variety of binary option sets. Three monkeys showed consistently few outright Preference Reversals (8%) but substantial graded Preference Changes (46%) between the initial preferred gamble and the corresponding altered gamble. Linear Discriminant Analysis (LDA) indicated that gamble probabilities predicted most Preference Changes in CC (72%) and CR (88%) tests. The Akaike Information Criterion indicated that probability weighting within Cumulative Prospect Theory (CPT) explained choices better than models using Expected Value (EV) or EUT. Fitting by utility and probability weighting functions of CPT resulted in nonlinear and non-parallel indifference curves (IC) in the Marschak-Machina triangle and suggested IA non-compliance of models using EV or EUT. Indeed, CPT models predicted Preference Changes better than EV and EUT models. Indifference points in out-of-sample tests were closer to CPT-estimated ICs than EV and EUT ICs. Finally, while the few outright Preference Reversals may reflect the long experience of our monkeys, their more graded Preference Changes corresponded to those reported for humans. In benefitting from the wide testing possibilities in monkeys, our stringent axiomatic tests contribute critical information about risky decision-making and serves as basis for investigating neuronal decision mechanisms.
      PubDate: 2022-07-22
       
  • Pay every subject or pay only some'

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      Abstract: Abstract Measuring risk tolerance is of interest to policymakers given its importance in decision-making, and previous research has shown that the scale of payoffs influences elicited risk aversion levels. Sometimes budget-conscious researchers pay only some subjects for their decisions when eliciting risk preferences, or pay smaller stakes to everyone. We test the effect of paying some versus paying all subjects in the context of risk preferences, controlling for the difference in stakes induced by paying only some subjects. Paying some subjects yields lower levels of risk aversion than paying everyone, but more risk aversion than paying all subjects lower stakes. Paying some subjects also impacts the ordering of subjects by elicited risk aversion. We estimate a simple structural model of latent risk aversion that derives a correction factor to approximate paying high stakes to all subjects. Paying some subjects high stakes meaningfully impacts the elicited level of risk aversion, but better approximates the condition of paying all subjects high stakes compared to paying everyone lower stakes.
      PubDate: 2022-07-14
      DOI: 10.1007/s11166-022-09389-6
       
  • The impact of risk aversion and ambiguity aversion on annuity and saving
           choices

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      Abstract: Abstract We analyze the impact of risk aversion and ambiguity aversion on the competing demands for annuities and bequeathable savings using a lifecycle recursive utility model. Our main finding is that risk aversion and ambiguity aversion have similar effects: an increase in either of the two reduces annuity demand and enhances bond holdings. We obtain this unequivocal result in the flexible intertemporal framework of Hayashi and Miao (2011) by assuming that the agent’s preferences are monotone with respect to first-order stochastic dominance. Our contribution is then twofold. First, from a decision-theoretic point of view, we show that monotonicity allows one to obtain clear-cut results about the respective roles of risk and ambiguity aversion. Second, from the insurance point of view, our result that the demand for annuities decreases with risk and ambiguity aversion stands in contrast with what is usually found with other insurance products. As such, it may help explain the low annuitization level observed in the data.
      PubDate: 2022-07-02
      DOI: 10.1007/s11166-022-09386-9
       
  • Choice uncertainty and the endowment effect

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      Abstract: Abstract We experimentally test for the role of choice uncertainty in generating “endowment effects” - the robust empirical finding that endowing participants with an item raises their reported valuation relative to participants being asked to purchase it instead. While there is some compelling evidence concerning trade uncertainty in the literature, there is substantially less evidence regarding the importance of choice uncertainty. This paper provides novel support for the significance of choice uncertainty in the context of both trading and stated valuations. In a primary set of studies, we find that reducing choice uncertainty eliminates under-trading in the exchange setting and decreases (but does not eliminate) the difference in average valuations reported by buyers and sellers, mainly by decreasing the number of extreme valuations by sellers. Interestingly, our treatment does not lead to a significant increase in the number of mutually acceptable trades implied by stated valuations. Comparing the results from our two primary experiments therefore suggests that value uncertainty continues to play a role in generating valuation asymmetries even after relevant product uncertainty has been resolved. A set of follow-up studies with modified designs replicates this finding in the exchange setting but fails to generate a valuation asymmetry in the control condition, possibly due to pandemic-related mitigation measures and less participant time with the endowed item.
      PubDate: 2022-06-16
      DOI: 10.1007/s11166-022-09387-8
       
  • Fatalism, beliefs, and behaviors during the COVID-19 pandemic

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      Abstract: Abstract Little is known about how people’s beliefs concerning the Coronavirus Disease 2019 (COVID-19) influence their behavior. To shed light on this, we conduct an online experiment ( \(n = 3,610\) ) with US and UK residents. Participants are randomly allocated to a control group or to one of two treatment groups. The treatment groups are shown upper- or lower-bound expert estimates of the infectiousness of the virus. We present three main empirical findings. First, individuals dramatically overestimate the dangerousness and infectiousness of COVID-19 relative to expert opinion. Second, providing people with expert information partially corrects their beliefs about the virus. Third, the more infectious people believe that COVID-19 is, the less willing they are to take protective measures, a finding we dub the “fatalism effect”. We develop a formal model that can explain the fatalism effect and discuss its implications for optimal policy during the pandemic.
      PubDate: 2022-06-02
      DOI: 10.1007/s11166-022-09375-y
       
  • The limits of reopening policy to alter economic behavior: New evidence
           from Texas

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      Abstract: Abstract In the midst of mass COVID-19 vaccination distribution efforts in the U.S. Texas became the first state to abolish its mask mandate and fully lift capacity constraints for all businesses, effective on March 10, 2021. Proponents claimed that the reopening would generate short-run employment growth and signal a return to normal while opponents argued that it would cause a resurgence of COVID-19 and kill Texans. This study finds that each side was largely incorrect. First, using daily anonymized smartphone data — and synthetic control and difference-in-differences approaches — we find no evidence that the Texas reopening led to substantial changes in mobility, including foot traffic at a wide set of business establishments. Second, we find no evidence that the Texas reopening affected the rate of new COVID-19 cases or deaths during the five weeks following the reopening. Our null results persist across more urbanized and less urbanized counties, as well as across counties that supported Donald Trump and Joe Biden in the 2020 presidential election. Finally, we find no evidence that the Texas reopening impacted short-run employment, including in industries most affected by the reopening. Together, these findings underscore the persistence of late-pandemic era private behavior and stickiness in individuals’ risk-related beliefs, and suggest that reopening policies may have impacts that are more muted than policymakers expect.
      PubDate: 2022-05-27
      DOI: 10.1007/s11166-022-09379-8
       
  • Strength of preference and decisions under risk

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      Abstract: Abstract Influential economic approaches as random utility models assume a monotonic relation between choice frequencies and “strength of preference,” in line with widespread evidence from the cognitive sciences, which also document an inverse relation to response times. However, for economic decisions under risk, these effects are largely untested, because models used to fit data assume them. Further, the dimension underlying strength of preference remains unclear in economics, with candidates including payoff-irrelevant numerical magnitudes. We provide a systematic, out-of-sample empirical validation of these relations (both for choices and response times) relying on both a new experimental design and simulations.
      PubDate: 2022-05-23
      DOI: 10.1007/s11166-022-09381-0
       
  • Self-serving dishonesty: The role of confidence in driving dishonesty

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      Abstract: Abstract Ambiguity and uncertainty as an explanation for ethical blind spots is well-documented. We contribute to this line of research by showing that these blind spots arise even when there is naturally occurring uncertainty—that is, when individuals are simply uncertain of the truth they “fill-in” this uncertainty in a self-serving way. To examine self-serving dishonesty, we asked a sample of U.S. car owners to respond to an auto insurance underwriting questionnaire that affects their price of insurance (i.e., premium), and investigated how financial incentives affect the honesty of their responses. We find, consistent with the current literature, that people have a strong preference for truthfulness, but only when they are confident of the objective truth. However, when people are not completely certain of the objectively correct answer, significant dishonesty occurs in a self-serving manner. We also find that reports of confidence do not depend on incentives and thus self-serving dishonesty is not strategic.
      PubDate: 2022-05-19
      DOI: 10.1007/s11166-022-09380-1
       
  • Smoking, selection, and medical care expenditures

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      Abstract: Abstract The contribution of cigarette smoking to national health expenditures is thought to be large, but our current understanding of the effect of smoking on annual medical expenditures is limited to studies that use cross-sectional data to make comparisons of medical care expenditures between smokers and never smokers at a particular age. We develop a dynamic economic model of smoking and medical care use that highlights two forms of selection: selective mortality and non-random cessation. To test predictions from our model, we construct novel longitudinal profiles of medical expenditures of smokers and never smokers from merged National Health Interview Survey and Medicare claims information. Consistent with our theory, we find that, from a given age, smokers generate higher expenditures prospectively, because of a higher incidence in inpatient usage, and lower expenditures retrospectively, because of lower outpatient usage. Between ages 65 and 84, we find that the expected value of the discounted sum of total expenditures is lower for smokers, mainly because of excess mortality. We find no evidence that cigarette smoking is a burden on Medicare.
      PubDate: 2022-04-30
      DOI: 10.1007/s11166-022-09378-9
       
  • Risk-taking and others 

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      Abstract: Abstract Real-life risk decisions are taken in a social context. However, we still know little about how that affects risk decisions. We have experimentally investigated the effect of social comparison on risk taking. We designed an experiment that allows us to isolate social comparison from other channels whereby the social context can affect risk decisions. The design also allows us to find impacts of the social reference point both if the individual cares about the distance to the social reference point and if she cares about her rank. Thus, we compare risk-taking in isolation to risk-taking with various exogenously imposed social reference points. We find that risk-taking is affected by the desire to get ahead of others, both when the social reference point is within reach (rank can be affected) and when it is out of reach (rank cannot be affected). Our results suggest that people do not only care about rank but also care about the distance to the social reference point.
      PubDate: 2022-04-20
      DOI: 10.1007/s11166-022-09376-x
       
  • On the role of monetary incentives in risk preference elicitation
           experiments

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      Abstract: Abstract Incentivized experiments in which individuals receive monetary rewards according to the outcomes of their decisions are regarded as the gold standard for preference elicitation in experimental economics. These task-related real payments are considered necessary to reveal subjects’ “true preferences.” Using a systematic, large-sample approach with three subject pools of private investors, professional investors, and students, we test the effect of task-related monetary incentives on risk preferences in four standard experimental tasks. We find no significant differences in behavior between and within subjects in the incentivized and non-incentivized regimes. We discuss implications for academic research and forions in the field.
      PubDate: 2022-04-20
      DOI: 10.1007/s11166-022-09377-w
       
  • Perceptions of personal and public risk: Dissociable effects on behavior
           and well-being

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      Abstract: Abstract When faced with a global threat peoples’ perception of risk guides their response. When danger is to the self as well as to others two risk estimates are generated—to the self and to others. Here, we set out to examine how people’s perceptions of health risk to the self and others are related to their psychological well-being and behavioral response. To that end, we surveyed a large representative sample of Americans facing the COVID-19 pandemic at two times (N1 = 1145, N2 = 683). We found that people perceived their own risk to be relatively low, while estimating the risk to others as relatively high. These risk estimates were differentially associated with psychological well-being and behavior. In particular, perceived personal but not public risk was associated with people’s happiness, while both were predictive of anxiety. In contrast, the tendency to engage in protective behaviors were predicted by peoples’ estimated risk to the population, but not to themselves. This raises the possibility that people were predominantly engaging in protective behaviors for the benefit of others. The findings can inform public policy aimed at protecting people’s psychological well-being and physical health during global threats.
      PubDate: 2022-04-02
      DOI: 10.1007/s11166-022-09373-0
       
  • How does risk preference change under the stress of COVID-19' Evidence
           from Japan

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      Abstract: Abstract In this study, we investigated whether the risk preference systematically changed during the spread of COVID-19 in Japan. Traditionally, risk preference is assumed to be stable over one’s life, though it differs among individuals. While recent studies have reported that it changes with a large event like natural disasters and financial crisis, they have not reached a consensus on its direction, risk aversion, or tolerance. We collected panel data of Japanese individuals in five waves from March to June 2020, which covered the period of the first cycle when COVID-19 spread rapidly and then dwindled. We measured risk preference through questions on the willingness to pay for insurance. The main results are as follows: First, people became more risk tolerant throughout the period; and second, people were more averse to mega risk than moderate risk, with the former correlating more strongly with the individual’s perception of COVID-19. The first result may be interpreted as “habituation” to repeated stress, as is understood in neuroscience.
      PubDate: 2022-03-22
      DOI: 10.1007/s11166-022-09374-z
       
  • Do people have a bias for low deductible insurance'

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      Abstract: Abstract This paper reports on a controlled web-based experiment designed to determine whether subjects have a predisposition toward low deductible (LD) rather than high deductible (HD) insurance plans when the LD plan is the default. We also are interested in whether individuals’ choice between LD and HD plans remains consistent if the default and premiums are changed. We find that only slightly more than half of the respondents choose a low deductible when the default option is the LD plan, and that many subjects consistently preferred the HD plan. In other words, we found no general preference for low deductible insurance. The research presented here should be viewed as another step in highlighting the importance of understanding individuals’ decision processes associated with the purchase of insurance.
      PubDate: 2022-02-18
      DOI: 10.1007/s11166-022-09368-x
       
  • Intertemporal choice as a tradeoff between cumulative payoff and average
           delay

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      Abstract: Abstract Intertemporal choice involves outcomes that are received in different moments of time. This paper presents a new framework for analyzing intertemporal choice as a tradeoff between the cumulative payoff of a stream of intertemporal outcomes and its average delay (similar to the mean–variance approach in modelling risk preferences). Ceteris paribus, a decision maker prefers a stream of intertemporal payoffs with a higher cumulative payoff and a lower average delay. A decision maker with such time preferences always dislikes a partial delay in consumption (splitting one payoff into two, one of which is slightly delayed in time). In contrast, many existing models (e.g. discounted utility, quasi-hyperbolic discounting, generalized hyperbolic discounting or liminal discounting) imply a preference for partial delay. Our proposed model is compatible with the common difference effect (corresponding to a horizontal fanning-out of indifference curves) and the absolute magnitude effect (corresponding to a vertical fanning-in of indifference curves). The proposed model is applied to the standard consumption-savings problem with a constant interest rate. A simple experimental test of the proposed model vs. discounted utility and quasi-hyperbolic discounting is presented.
      PubDate: 2022-01-25
      DOI: 10.1007/s11166-022-09370-3
       
 
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