Risk Aversion, Prudence and Temperance: It Is a Matter of Gap Between Moments

59 Pages Posted: 15 Apr 2019

See all articles by Annarita Colasante

Annarita Colasante

Jaume I University

Luca Riccetti

Università degli Studi di Macerata

Date Written: March 19, 2019

Abstract

Higher order risk preferences are important determinants of choices under uncertainty. After clarifying some terminological and methodological issues, we are able to confi rm, by using data collected by a questionnaire, the well established result of the preference of the majority of the respondents for higher odd and lower even moments of the expected return distribution. We highlight three features: (i) the importance of the gap between the values of the corresponding moments of the two choices, (ii) the behavioral change in presence of a positive/zero/negative expected value, (iii) the huge heterogeneity in behaviors, also due to the complexity of the choice as an important driver of the propensity to switch from choosing on the basis of preferences to choosing randomly. We further analyse the relationship between risk attitudes in monetary and non-monetary contexts, showing that they are correlated, but correlation is far from 1, with a larger risk aversion in fields like health. Interestingly, the propensity to perform illegal activities could be a good indicator of financial risk propensity, and age and geographical location are important determinants of risk propensity.

Keywords: behavioural finance, experiment, choice under uncertainty, moments of return distribution, utility function

JEL Classification: C91, D01, D81, D90, G40

Suggested Citation

Colasante, Annarita and Riccetti, Luca, Risk Aversion, Prudence and Temperance: It Is a Matter of Gap Between Moments (March 19, 2019). Available at SSRN: https://ssrn.com/abstract=3355602 or http://dx.doi.org/10.2139/ssrn.3355602

Annarita Colasante

Jaume I University ( email )

Castellon
E-12071 Castello de la Plana, Castellón de la Plana 12071
Spain

Luca Riccetti (Contact Author)

Università degli Studi di Macerata ( email )

via Crescimbeni
Macerata
Italy

HOME PAGE: http://docenti.unimc.it/luca.riccetti

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