Higher order risk attitudes and prevention under different timings of loss

Authors:
Publisher website
Google Scholar
Abstract
This paper provides experimental evidence of the role of higher order risk attitudes—especially prudence—in prevention behavior. Prudence, under an expected utility framework, increases (decreases) self-protection effort compared to the risk neutral level when the risk of losing part of an income exists in a future (the same) period. Motivated by these predictions that give the exact test on prudence, an experiment was designed where subjects go through higher order risk attitude elicitation and make a self-protection decision. In contrast to the expected utility theory, the observed efforts are less than the risk neutral level, regardless of the timing of loss. This violation of expected utility predictions can be explained by probability weighting.
Funding Information
  • Japan Society for the Promotion of Science (17K13701, 15H05728)
  • Keihanshin Consortium for Fostering the Next Generation of Global Leaders in Research
  • John-Mung Overseas Program
  • Murata Science and Education Foundation
  • BK21Plus Program of the Ministry of Education and National Research Foundation of Korea (NRF-21B20130000013)