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Risk preference discrepancy : a prospect relativity account of the discrepancy between risk preferences in laboratory gambles and real world investments
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Vlaev, Ivo, Stewart, Neil 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. doi:10.1080/15427560802336673 ISSN 1542-7560.
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Official URL: http://dx.doi.org/10.1080/15427560802336673
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 | ||||
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Subjects: | H Social Sciences > HB Economic Theory B Philosophy. Psychology. Religion > BF Psychology |
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Divisions: | Faculty of Social Sciences > Warwick Business School > Behavioural Science Faculty of Science, Engineering and Medicine > Science > Psychology |
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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 | ||||
Official Date: | July 2008 | ||||
Dates: |
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Volume: | Vol.9 | ||||
Number: | No.3 | ||||
Number of Pages: | 17 | ||||
Page Range: | pp. 132-148 | ||||
DOI: | 10.1080/15427560802336673 | ||||
Status: | Not Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Funder: | Economic and Social Research Council (Great Britain) (ESRC) | ||||
Grant number: | R000239351 (ESRC) |
Data sourced from Thomson Reuters' Web of Knowledge
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