Risk Attitudes of Children and Adults: Choices Over Small and Large Probability Gains and Losses
- Cite this article as:
- Harbaugh, W.T., Krause, K. & Vesterlund, L. Experimental Economics (2002) 5: 53. doi:10.1023/A:1016316725855
- 818 Downloads
In this paper we examine how risk attitudes change with age. We present participants from age 5 to 64 with choices between simple gambles and the expected value of the gambles. The gambles are over both gains and losses, and vary in the probability of the non-zero payoff. Surprisingly, we find that many participants are risk seeking when faced with high-probability prospects over gains and risk averse when faced with small-probability prospects. Over losses we find the exact opposite. Children's choices are consistent with the underweighting of low-probability events and the overweighting of high-probability ones. This tendency diminishes with age, and on average adults appear to use the objective probability when evaluating risky prospects.