Vlaev, Ivo, Stewart, Neil, 1974- and Chater, Nick. (2008) Risk preference discrepancy: a prospect relativity account of the discrepancy between risk preferences in laboratory gambles and real world investments. Journal of Behavioral Finance, Vol.9 (No.3). pp. 132-148. ISSN 1542-7560

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Abstract

In this article, we presented evidence that people are more risk averse when investing in financial products in the real world than when they make risky choices between gambles in laboratory experiments. In order to provide an account for this discrepancy, we conducted experiments, which showed that the range of offered investment funds that vary in their riskreward characteristics had a significant effect on the distribution of hypothetical funds to those products. We also showed that people are able to use the context provided by the choice set in order the make relative riskiness judgments for investment products. This context dependent relativistic nature of risk preferences is proposed as a plausible explanation of the risk preference discrepancy between laboratory experiments and real-world investments. We also discuss other possible theoretical interpretations of the discrepancy.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory B Philosophy. Psychology. Religion > BF Psychology
Divisions:	Faculty of Social Sciences > Warwick Business School > Behavioural Science Faculty of Science > Psychology
Library of Congress Subject Headings (LCSH):	Risk-taking (Psychology) -- Testing, Decision making -- Testing, Investments
Journal or Publication Title:	Journal of Behavioral Finance
Publisher:	Routledge
ISSN:	1542-7560
Date:	July 2008
Volume:	Vol.9
Number:	No.3
Number of Pages:	17
Page Range:	pp. 132-148
Identification Number:	10.1080/15427560802336673
Status:	Not Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Open Access
Funder:	Economic and Social Research Council (Great Britain) (ESRC)
Grant number:	R000239351 (ESRC)
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URI:	http://wrap.warwick.ac.uk/id/eprint/615

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