Abstract
I collect data on subjects' risk attitudes using real and hypothetical risky choices. I also measure their cognitive ability using the cognitive reflective test (CRT). On average, measured risk preferences are not significantly different across real and hypothetical settings. However, cognitive ability is inversely related to risk aversion when choices are hypothetical, but it is unrelated when the choices are real. This interaction between cognitive ability and hypothetical setting is consistent with the notion that some individuals, specifically higher-ability individuals, may treat hypothetical choices as "puzzles," and provides one potential explanation for why some studies find that subjects indicate that they are more tolerant of risk when they make hypothetical choices than when they make real choices.
| Original language | English |
|---|---|
| Pages (from-to) | 299-320 |
| Number of pages | 22 |
| Journal | Journal of Risk and Uncertainty |
| Volume | 46 |
| Issue number | 3 |
| DOIs | |
| State | Published - Jun 2013 |
Funding
Acknowledgments This research was supported by a grant from the Mikesell Foundation of the University of Oregon. I thank Trudy Ann Cameron, Bill Harbaugh, and Van Kolpin for valuable insights and comments. I am also grateful for helpful suggestions from Alfredo Burlando, Nicholas Sly, Joe Stone, David Wozniak, and seminar participants at the 2011 North American Economic Science Association Conference and the 1st Annual Association of Environmental and Resource Economists Summer Conference. I also thank Danny O’Neil and Megan Ickler for assisting with the experiment. All remaining errors are my own.
Keywords
- Decision making
- Hypothetical bias
- Revealed preference
- Risk aversion
- Stated preference