DP1893 Measuring Risk Attitudes in a Natural Experiment: Data from the Television Game Show LINGO

Author(s): Roel Beetsma, Peter C Schotman
Publication Date: June 1998
Keyword(s): decision weights, expected utility, LINGO, natural experiments, Risk Aversion
JEL(s): C90, D81
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1893

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.