Do Measures of Risk Attitude in the Laboratory Predict Behavior Under Risk in and Outside of the Laboratory?

58 Pages Posted: 25 Jun 2019 Last revised: 1 Oct 2022

See all articles by Gary Charness

Gary Charness

University of California, Santa Barbara (UCSB) - Department of Economics

Thomas Garcia

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE)

Marie Claire Villeval

GATE, CNRS

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Abstract

We consider the external validity of laboratory measures of risk attitude. Based on a large-scale experiment using a representative panel of the Dutch population, we test if these measures can explain two different types of behavior: (i) behavior in laboratory risky financial decisions, and (ii) behavior in naturally-occurring field behavior under risk (financial, health and employment decisions). We find that measures of risk attitude are related to behavior in laboratory financial decisions and the most complex measures are outperformed by simpler measures. However, measures of risk attitude are not related to risk-taking in the field, calling into question the methods currently used for the purpose of measuring actual risk preferences. We conclude that while the external validity of measures of risk attitude holds in closely related frameworks, this validity is compromised in more remote settings.

Keywords: elicitation methods, lab-in-the-field experiment, risk preferences

JEL Classification: C91, C93, D81

Suggested Citation

Charness, Gary and Garcia, Thomas and Offerman, Theo and Villeval, Marie Claire, Do Measures of Risk Attitude in the Laboratory Predict Behavior Under Risk in and Outside of the Laboratory?. IZA Discussion Paper No. 12395, Available at SSRN: https://ssrn.com/abstract=3408293

Gary Charness (Contact Author)

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

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Thomas Garcia

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

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Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

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Marie Claire Villeval

GATE, CNRS ( email )

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Ecully, 69130
France
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+33 472 86 60 90 (Fax)

HOME PAGE: http://sites.google.com/view/marie-claire-villeval

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