Theory and Decision

, Volume 75, Issue 2, pp 175–191 | Cite as

Individual vs. couple behavior: an experimental investigation of risk preferences

  • Mohammed Abdellaoui
  • Olivier l’Haridon
  • Corina Paraschiv
Article

Abstract

In this article, we elicit both individuals’ and couples’ preferences assuming prospect theory (PT) as a general theoretical framework for decision under risk. Our experimental method, based on certainty equivalents, allows to infer measurements of utility and probability weighting at the individual level and at the couple level. Our main results are twofold. First, risk attitude for couples is compatible with PT and incorporates deviations from expected utility similar to those found in individual decision making. Second, couples’ attitudes towards risk are found to be consistent with a mix of individual attitudes, women being more influent on couples’ preferences at low probability levels.

Keywords

Couples Group decisions Risk Uncertainty Prospect theory Utility Gender 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. (2007) Loss aversion under prospect theory: A parameter-free measurement. Management Science 53(10): 1659–1674CrossRefGoogle Scholar
  2. (2008) A tractable method to measure utility and loss aversion under prospect theory. Journal of Risk and Uncertainty 36(3): 245–266CrossRefGoogle Scholar
  3. (2011) The rich domain of uncertainty. American Economic Review 101: 695–723CrossRefGoogle Scholar
  4. Ashraf N. (2009) Spousal control and intra-household decision making: An experimental study in the philippines. American Economic Review 99(4): 1245–1277CrossRefGoogle Scholar
  5. Baker R., Laury S., Williams A. (2008) Comparing small-group and individual behavior in lottery-choice experiments. Southern Economic Journal 75(2): 367–382Google Scholar
  6. Bateman I., Munro A. (2005) An experiment on risky choice amongst households. Economic Journal 115(502): 176–189CrossRefGoogle Scholar
  7. Becker G. (1973) A theory of marriage: Part I. Journal of Political Economy 81(4): 46–813CrossRefGoogle Scholar
  8. Blinder A., Morgan J. (2005) Are two heads better than one? Monetary policy by committee. Journal of Money, Credit and Banking 37(5): 789–811CrossRefGoogle Scholar
  9. Booij A., van de Kuilen G. (2009) A parameter free analysis of the utility of money for the general population under prospect theory. Journal of Economic Psychology 30: 651–666CrossRefGoogle Scholar
  10. Browning M., Chiappori P. A. (1998) Efficient intra-household allocations: A general characterization and empirical tests. Econometrica 66(6): 1241–1278CrossRefGoogle Scholar
  11. Bruhin A., Fehr-Duda H., Epper T. (2011) Risk and rationality: Uncovering heterogeneity in probability distortion. Econometrica 78: 1375–1412Google Scholar
  12. Budescum, D., Diecidue, E., & Keck, S. (2010). Ambiguity in group decision making. Working Paper. INSEAD.Google Scholar
  13. Carlsson, F., Martinsson, P., Qin, P., Matthias, S. (2009). Household decision making and the influence of spouses? Income, education, and communist party membership: A field experiment in rural china. Working Papers 2009-09. University of Innsbruck.Google Scholar
  14. Chambers, C., & Echenique F. (2010). When does aggregation reduce risk aversion? Working Paper. California Institute of Technology.Google Scholar
  15. Charness G., Karni E., Levin D. (2011) Individual and group decision making under risk: An experimental study of bayesian updating and violations of first-order stochastic dominance. Journal of Risk and Uncertainty 35(2): 129–148CrossRefGoogle Scholar
  16. Cherchye L., De Rock B., Vermeulen F. (2009) Opening the black box of intrahousehold decision making: Theory and nonparametric empirical tests of general collective consumption models. Journal of Political Economy 117(6): 1074–1104CrossRefGoogle Scholar
  17. Chiappori P.-A. (1988) Nash-bargained households decisions: A comment. International Economic Review 29(4): 96–791CrossRefGoogle Scholar
  18. Chiappori, P.-A., Reny, P. (2006). Matching to share risk. Working Paper. University of Chicago.Google Scholar
  19. Croson R., Gneezy U. (2009) Gender differences in preferences. Journal of Economic Literature 47(2): 74–448CrossRefGoogle Scholar
  20. De Palma A., Picard N., Ziegelmeyer A. (2011) Individual and couple decision behavior under risk: Evidence on the dynamics of power balance. Theory and Decision 70: 45–64CrossRefGoogle Scholar
  21. Dellavigna S. (2009) Psychology and economics: Evidence from the field. Journal of Economic Literature 47: 315–372CrossRefGoogle Scholar
  22. Dohmen, T., Falk, A., Huffman, D., & Sunde U. (2011). The intergenerational transmission of risk and trust attitudes. Review of Economic Studies doi:10.1093/restud/rdr027.
  23. Fehr-Duda H., de Gennaro M., Schubert R. (2006) Gender, financial risk, and probability weights. Theory and Decision 60(2): 283–313CrossRefGoogle Scholar
  24. Gierlinger, J., & Laczó, S. (2011.) Matching and self-enforcing insurance. mimeo.Google Scholar
  25. Gonzalez R., Wu G. (1996) On the shape of the probability weighting function. Cognitive Psychology 38: 129–166CrossRefGoogle Scholar
  26. Harrison G., Rutström E. (2009) Expected utility theory and prospect theory: One wedding and a decent funeral. Experimental Economics 12(2): 133–158CrossRefGoogle Scholar
  27. Kahneman D., Tversky A. (1979) Prospect theory: An analysis of decision under risk. Econometrica 47: 263–291CrossRefGoogle Scholar
  28. Kebede, B., Tarazona, M., Munro, A., & Verschoor, A. (2011). Intra-household efficiency: An experimental study from ethiopia. Technical Report.Google Scholar
  29. Lundberg S., Pollak R., Wales T. (1997) Do husbands and wives pool their resources? Evidence from UK child benefit. The Journal of Human Resources 32(3): 463–480CrossRefGoogle Scholar
  30. Mazzocco M. (2004) Saving, risk sharing, and preferences for risk. American Economic Review 94(4): 1169–1182CrossRefGoogle Scholar
  31. Munro, A., & Popov, D. (June 2009). A missing link in behavioural economics? A portmanteau experiment on the relevance of individual decision anomalies for households. Royal Holloway, University of London: Discussion Papers in Economics 09/10.Google Scholar
  32. Niederle M., Vesterlund L. (2007) Do women shy away from competition? Do men compete too much?. The Quarterly Journal of Economics 122(3): 1067–1101CrossRefGoogle Scholar
  33. Prelec D. (1998) The probability weighting function. Econometrica 66: 497–528CrossRefGoogle Scholar
  34. Quiggin J. (1982) A theory of anticipated utility. Journal of Economic Behavior and Organization 3(4): 323–343CrossRefGoogle Scholar
  35. Shupp R., Williams A. (2008) Risk preference differentials of small groups and individuals. Economic Journal 118(525): 258–283CrossRefGoogle Scholar
  36. Starmer C. (2000) Developments in non-expected utility theory: The hunt for a descriptive theory of choice under risk. Journal of Economic Literature 28: 332–382CrossRefGoogle Scholar
  37. Sutter M. (2007) Are teams prone to myopic loss aversion? An experimental study on individual versus team investment behavior. Economics Letters 97(2): 128–132CrossRefGoogle Scholar
  38. Tversky A., Fox C. (1995) Weighting risk and uncertainty. Psychological Review 102: 269–283CrossRefGoogle Scholar
  39. Tversky A., Kahneman D. (1992) Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty 5: 297–323CrossRefGoogle Scholar
  40. Wakker P. (2010) Prospect theory: For risk and ambiguity. Cambridge University Press, CambridgeCrossRefGoogle Scholar
  41. Wu G., Gonzalez R. (1996) Curvature of the probability weighting function. Management Science 42: 1676–1690CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  • Mohammed Abdellaoui
    • 1
  • Olivier l’Haridon
    • 2
  • Corina Paraschiv
    • 3
  1. 1.HEC-Paris & GREGHEC-CNRSJouy en Josas CedexFrance
  2. 2.Crem-Université de Rennes 1 & GREGHECRennesFrance
  3. 3.Université Paris Descartes & GREGHECJouy en Josas CedexFrance

Personalised recommendations