Advertisement

Journal of Risk and Uncertainty

, Volume 47, Issue 1, pp 31–65 | Cite as

The “bomb” risk elicitation task

  • Paolo CrosettoEmail author
  • Antonio Filippin
Article

Abstract

This paper presents the Bomb Risk Elicitation Task (BRET), an intuitive procedure aimed at measuring risk attitudes. Subjects decide how many boxes to collect out of 100, one of which contains a bomb. Earnings increase linearly with the number of boxes accumulated but are zero if the bomb is also collected. The BRET requires minimal numeracy skills, avoids truncation of the data, allows the precise estimation of both risk aversion and risk seeking, and is not affected by the degree of loss aversion or by violations of the Reduction Axiom. We validate the BRET, test its robustness in a large-scale experiment, and compare it to three popular risk elicitation tasks. Choices react significantly only to increased stakes, and are sensible to wealth effects. Our experiment rationalizes the gender gap that often characterizes choices under uncertainty by means of a higher loss rather than risk aversion.

Keywords

Risk aversion Loss aversion Elicitation method 

JEL Classifications

C81 C91 D81 

Notes

Acknowledgments

We are grateful to the Max Planck Institute of Economics (Jena) for financial and logistic support and to Denise Hornberger, Nadine Marmai, Florian Sturm, and Claudia Zellmann for their assistance in the lab. We would like to thank Alexia Gaudeul and Gerhard Riener for helpful suggestions and participants at the ESA 2012 Conferences in New York and Cologne and at the Nordic Conference on Behavioral and Experimental Economics (Bergen), participants of seminars at the MPI Jena and at the University of Stirling, as well as an anonymous referee, for their comments. All remaining errors are ours.

References

  1. Becker, G., DeGroot, M., Marschak, J. (1964). Measuring utility by a single-response sequential method. Behavioral Science, 9, 226–236.CrossRefGoogle Scholar
  2. Bernasconi, M., & Loomes, G. (1992). Failures of the reduction principle in an Ellsberg-type problem. Theory and Decision, 32(1), 77–100.CrossRefGoogle Scholar
  3. Blais, A.-R., & Weber, E.U. (2006). A domain-specific risk-taking (DOSPERT) scale for adult populations. Judgment and Decision Making, 1, 33–47.Google Scholar
  4. Booij, A., & de Kuilen, G.V. (2009). A parameter-free analysis of the utility of money for the general population under prospect theory. Journal of Economic Psychology, 30(4), 651–666.CrossRefGoogle Scholar
  5. Brooks, P., & Zank, H. (2005). Loss averse behavior. Journal of Risk and Uncertainty, 31(3), 301–325.CrossRefGoogle Scholar
  6. Charness, G., & Gneezy, U. (2010). Portfolio choice and risk attitudes: an experiment. Economic Inquiry, 48(1), 133–146.CrossRefGoogle Scholar
  7. Charness, G., & Gneezy, U. (2012). Strong evidence for gender differences in risk taking. Journal of Economic Behavior & Organization, 83(1), 50–58.CrossRefGoogle Scholar
  8. Cox, J.C., Roberson, B., Smith, V.L. (1982). Theory and behavior of single object auctions. Greenwich: JAI Press.Google Scholar
  9. Crosetto, P., & Filippin, A. (2013). A theoretical and experimental appraisal of five risk elicitation methods. Jena Economic Research Paper 2013-009. Jena: Friedrich-Schiller University and the Max-Planck-Institute of Economics.Google Scholar
  10. Croson, R., & Gneezy, U. (2009). Gender differences in preferences. Journal of Economic Literature, 47(2), 448–74.CrossRefGoogle Scholar
  11. Dave, C., Eckel, C., Johnson, C., Rojas, C. (2010). Eliciting risk preferences: when is simple better? Journal of Risk and Uncertainty, 41(3), 219–243.CrossRefGoogle Scholar
  12. Dohmen, T., Falk, A., Huffman, D., Sunde, U., Schupp, J., Wagner, G.G. (2011). Individual risk attitudes: measurement, determinants, and behavioral consequences. Journal of the European Economic Association, 9(3), 522–550.CrossRefGoogle Scholar
  13. Eckel, C.C., & Grossman, P.J. (2002). Sex differences and statistical stereotyping in attitudes toward financial risk. Evolution and Human Behavior, 23(4), 281–295.CrossRefGoogle Scholar
  14. Eckel, C., Weber, E., Wilson, R.K. (2003). Four ways to measure risk attitudes.Google Scholar
  15. Eckel, C.C., & Grossman, P.J. (2008a). Forecasting risk attitudes: an experimental study using actual and forecast gamble choices. Journal of Economic Behavior & Organization, 68(1), 1–17.CrossRefGoogle Scholar
  16. Eckel, C.C., & Grossman, P.J. (2008b). Men, women and risk aversion: experimental evidence. Handbook of experimental economics results (Vol. 1, Ch. 113, pp. 1061–1073). Elsevier.Google Scholar
  17. Gaechter, S., Johnson, E.J., Herrmann, A. (2010). Individual-level loss aversion in riskless and risky choices. Discussion papers 2010-20, the centre for decision research and experimental economics. School of Economics: University of Nottingham.Google Scholar
  18. Garcia-Gallego, A., Georgantzis, N., Jaramillo-Gutiérrez, A., Parravano, M. (2012). The lottery-panel task for bi-dimensional parameter-free elicitation of risk attitudes. Tech. rep., Department of Economic Theory and Economic History of the University of Granada.Google Scholar
  19. Gneezy, U., & Potters, J. (1997). An experiment on risk taking and evaluation periods. The Quarterly Journal of Economics, 112(2), 631–45.CrossRefGoogle Scholar
  20. Grether, D.M., & Plott, C.R. (1979). Economic theory of choice and the preference reversal phenomenon. American Economic Review, 69(4), 623–38.Google Scholar
  21. Halevy, Y. (2007). Ellsberg revisited: an experimental study. Econometrica, 75(2), 503–536.CrossRefGoogle Scholar
  22. Harbaugh, W., Krause, K., Vesterlund, L. (2010). The fourfold pattern of risk attitudes in choice and pricing tasks. The Economic Journal, 120(545), 595–611.CrossRefGoogle Scholar
  23. Harrison, G.W. (1990). Risk attitudes in first-price auction experiments: a Bayesian analysis. The Review of Economics and Statistics, 72(3), 541–46.CrossRefGoogle Scholar
  24. Harrison, G.W., & Rutström, E.E. (2008). Risk aversion in the laboratory. In J.C. Cox, & G.W. Harrison (Eds.), Risk aversion in experiments (Vol. 12, pp. 41–196). Bingley: Emerald Group Publishing Limited.CrossRefGoogle Scholar
  25. Harrison, G.W., & Swarthout, J.T. (2012). The independence axiom and the bipolar behaviorist. Experimental economics center working paper series 2012-01, experimental economics center. Andrew Young School of Policy Studies. Georgia State University. Unpublished working paper. Google Scholar
  26. Holt, C., & Laury, S. (2002). Risk aversion and incentive effects. American Economic Review, 92(5), 1644–1655.CrossRefGoogle Scholar
  27. Holt, C.A., & Laury, S.K. (2005). Risk aversion and incentive effects: new data without order effects. American Economic Review, 95(3), 902–912.CrossRefGoogle Scholar
  28. Kahneman, D., & Tversky, A. (1979). Prospect theory: an analysis of decision under risk. Econometrica, 47(2), 263–291.CrossRefGoogle Scholar
  29. Kaivanto, K., & Kroll, E.B. (2011). Negative recency, randomization device choice, and reduction of compound lotteries. Working Paper Series in Economics 22, Karlsruhe Institute of Technology (KIT). Department of Economics and Business Engineering.Google Scholar
  30. Karni, E., & Safra, Z. (1987). Preference reversal and the observability of preferences by experimental methods. Econometrica, 55(3), 675–85.CrossRefGoogle Scholar
  31. Lejuez, C., Read, J., Kahler, C., Richards, J., Ramsey, S., Stuart, G., Strong, D., Brown, R. (2002). Evaluation of a behavioral measure of risk taking: The Balloon Analogue Risk Task (BART). Journal of Experimental Psychology: Applied, 8(2), 75.CrossRefGoogle Scholar
  32. Schmidt, U., & Traub, S. (2002). An experimental test of loss aversion. Journal of Risk and Uncertainty, 25(3), 233–49.CrossRefGoogle Scholar
  33. Schubert, R., Brown, M., Gysler, M., Brachinger, H. (1999). Financial decision-making: are women really more risk-averse? American Economic Review, 89(2), 381–385.CrossRefGoogle Scholar
  34. Tversky, A., & Kahneman, D. (1992). Advances in prospect theory: cumulative representation of uncertainty. Journal of Risk and Uncertainty, 5(4), 297–323.CrossRefGoogle Scholar
  35. van Rossum, G. (1995). Python reference manual. CWI Report CS-R9525.Google Scholar
  36. von Neumann, J., & Morgenstern, O. (1944). Theory of games and economic behavior. Princeton: Princeton University Press.Google Scholar
  37. Wagner, G.G., Frick, J.R., Schupp, J. (2007). The german socio-economic panel study (soep): scope, evolution and enhancements. SOEP papers on multidisciplinary panel data research 1, The German Socio-Economic Panel (SOEP), DIW Berlin.Google Scholar
  38. Wakker, P., & Deneffe, D. (1996). Eliciting von Neumann-Morgenstern utilities when probabilities are distorted or unknown. Management Science, 42(8), 1131–1150.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Max Planck Institute of EconomicsJenaGermany
  2. 2.Department of Economics,University of Milan,MilanoItaly
  3. 3.Institute for the Study of Labor (IZA)BonnGermany

Personalised recommendations