Theory and Decision

, Volume 64, Issue 2, pp 395–420

Risk Aversion when Gains are Likely and Unlikely: Evidence from a Natural Experiment with Large Stakes

Authors

    • Institute for Empirical Research in EconomicsUniversity of Zurich
  • Ganna Pogrebna
    • Institute for Social and Economic Research and PolicyColumbia University
Article

DOI: 10.1007/s11238-007-9056-0

Cite this article as:
Blavatskyy, P. & Pogrebna, G. Theor Decis (2008) 64: 395. doi:10.1007/s11238-007-9056-0

Abstract

In the television show Deal or No Deal a contestant is endowed with a sealed box, which potentially contains a large monetary prize. In the course of the show the contestant learns more information about the distribution of possible monetary prizes inside her box. Consider two groups of contestants, who learned that the chances of their boxes containing a large prize are 20% and 80% correspondingly. Contestants in both groups receive qualitatively similar price offers for selling the content of their boxes. If contestants are less risk averse when facing unlikely gains, the price offer is likely to be more frequently rejected in the first group than in the second group. However, the fraction of rejections is virtually identical across two groups. Thus, contestants appear to have identical risk attitudes over (large) gains of low and high probability.

Keywords

risk attituderisk aversionrisk seekingnatural experiment

JEL Classification

C93D81
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Copyright information

© Springer Science+Business Media LLC 2007