TY - JOUR
T1 - Higher order risk attitudes, demographics, and financial decisions
AU - Noussair, Charles N.
AU - Trautmann, Stefan T.
AU - Van De Kuilen, Gijs
N1 - Funding Information:
Acknowledgments. We thank Corrie Vis and Maarten Streefkerk of CentERdata for their support in collecting the data, and Gyula Seres for excellent research assistance. We also thank the editor and the four anonymous reviewers, Rob Alessie, Louis Eeckhoudt, Glenn Harrison, Christoph Heinzel, Julian Jamison, Miles Kimball, Michael Kirchler, Harris Schlesinger, Martin Weber, Nicolas Treich, participants at the 2010 LMUexcellent Symposium Workshop on Risk Measures and Attitudes, the 2011 Netspar International Pension Workshop, the 2011 Obergurgl Workshop on Financial Markets and Risk, the 2012 Granada Workshop on Experimental Economics, the 2012 Technion-Erasmus Decision Workshop, MBEES 2012 in Maastricht, FUR 2012 in Atlanta, and at Harvard University, ITAM, the University of East Anglia, the University of Heidelberg, the University of Mannheim, the University of Amsterdam, University Pompeu Fabra, University of Konstanz, Ludwig-Maximilian University, Waseda University, and WHU Business School for helpful comments and suggestions. We gratefully acknowledge financial support from Netspar and CentER at Tilburg University. Stefan Trautmann and Gijs van de Kuilen’s research was supported by VENI grants from the Netherlands Organization for Scientific Research (NWO). In this article use is made of data of the LISS (Longitudinal Internet Studies for the Social sciences) panel administered by CentERdata (Tilburg University, The Netherlands).
PY - 2014/1
Y1 - 2014/1
N2 - We study the prevalence of the higher order risk attitudes of prudence and temperance in an experiment with a large demographically representative sample of participants. Under expected utility, prudence and temperance are defined by a convex first, and concave second, derivative of the utility function, and have direct implications for saving behaviour and portfolio choice. In the experiment, participants make pairwise choices that distinguish prudent from imprudent, and temperate from intemperate, behaviour. We correlate individuals' risk aversion, prudence, and temperance levels to their demographic profiles and their financial decisions outside the experiment. We observe that the majority of individuals' decisions are consistent with risk aversion, prudence, and temperance. Prudence is positively correlated with saving, as predicted by precautionary saving theory. Temperance is negatively correlated with the riskiness of portfolio choices.
AB - We study the prevalence of the higher order risk attitudes of prudence and temperance in an experiment with a large demographically representative sample of participants. Under expected utility, prudence and temperance are defined by a convex first, and concave second, derivative of the utility function, and have direct implications for saving behaviour and portfolio choice. In the experiment, participants make pairwise choices that distinguish prudent from imprudent, and temperate from intemperate, behaviour. We correlate individuals' risk aversion, prudence, and temperance levels to their demographic profiles and their financial decisions outside the experiment. We observe that the majority of individuals' decisions are consistent with risk aversion, prudence, and temperance. Prudence is positively correlated with saving, as predicted by precautionary saving theory. Temperance is negatively correlated with the riskiness of portfolio choices.
KW - Experiment
KW - Prudence
KW - Temperance
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U2 - 10.1093/restud/rdt032
DO - 10.1093/restud/rdt032
M3 - Article
AN - SCOPUS:84893397330
SN - 0034-6527
VL - 81
SP - 325
EP - 355
JO - Review of Economic Studies
JF - Review of Economic Studies
IS - 1
M1 - rdt032
ER -