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American Economic Review: Vol. 101 No. 2 (April 2011)


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Heterogeneity in Risky Choice Behavior in a Broad Population

Article Citation

von Gaudecker, Hans-Martin, Arthur van Soest, and Erik Wengstrom. 2011. "Heterogeneity in Risky Choice Behavior in a Broad Population." American Economic Review, 101(2): 664-94.

DOI: 10.1257/aer.101.2.664


We analyze risk preferences using an experiment with real incentives in a representative sample of 1,422 Dutch respondents. Our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics: utility curvature, loss aversion, preferences toward the timing of uncertainty resolution, and the propensity to choose randomly rather than on the basis of preferences. We find that all four parameters contribute to explaining choice behavior. The structural parameters are significantly associated with socioeconomic variables, but it is essential to incorporate unobserved heterogeneity in each of them to match the rich variety of choice patterns in the data. (JEL D12, D81)

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von Gaudecker, Hans-Martin (U Mannheim)
van Soest, Arthur (Tilburg U)
Wengstrom, Erik (Lund U and U Copenhagen)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
D81: Criteria for Decision-Making under Risk and Uncertainty

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