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Discussion Paper Details

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Title: Measuring Risk Attitudes in a Natural Experiment: Data from the Television Game Show LINGO

Author(s): Roel Beetsma and Peter C Schotman

Publication Date: June 1998

Keyword(s): decision weights, expected utility, LINGO, natural experiments and Risk Aversion

Programme Area(s): Financial Economics

Abstract: We use data from a television game show, involving elementary lotteries and substantial prize money, as a natural experiment to measure risk attitudes. We find robust evidence of substantial risk aversion. As an extension, we esimate the various models using transformations of the ?true? probabilities to decision weights. The estimated degree of risk aversion increases further, while players tend to overestimate substantially their chances of winning. Constant Relative Risk Aversion (CRRA) and Constant Absolute Risk Aversion (CARA) utility specifications perform approximately equally well, with CARA having the advantage that the players? decisions do not depend on their initial wealth.

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Bibliographic Reference

Beetsma, R and Schotman, P. 1998. 'Measuring Risk Attitudes in a Natural Experiment: Data from the Television Game Show LINGO'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1893