Theory and Decision

, Volume 78, Issue 2, pp 189–208 | Cite as

Skewness seeking: risk loving, optimism or overweighting of small probabilities?

Article
First Online:

Abstract

In a controlled laboratory experiment we use one sample of college students and one of mature executives to investigate how positive skew influences risky choices. In reduced-form regressions we find that both students and executives make riskier choices when lotteries display positive skew. We estimate decision models to explore three explanations for skew seeking choices: risk-loving (convex utility), optimism (concave probability weighting) and likelihood insensitivity (inverse s-shape probability weighting). We find no role for love for risk as neither students nor executives have convex utility. Both optimism and likelihood insensitivity play a part in skew seeking choices. Likelihood insensitivity is larger for students than for executives. Executives have more concave utility and are more optimistic than students, but this is found to be largely due to them being older.

Keywords

Decision making under risk Skew Laboratory experiment 

JEL Classification

D81 C91 
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Notes

Acknowledgments

We thank Mohammed Abdellaoui, Vince Crawford, Florian Ederer, Ernst Fehr, Xavier Gabaix, Itzhak Gilboa, Glenn Harrison, Botond Koszegi and Joel Sobel for helpful comments. We also thank seminar participants at HEC Paris, Lisbon Technical University, Ludwig-Maximilian University, Nova University Lisbon, Portuguese Catholic University, University of Nottingham, University of Lausanne, University of Zurich, the National Bureau of Economic Research Entrepreneurship Working Group Meeting, the 36th EARIE Conference and the Royal Economic Society Conference in Surrey. Gordon Adomdza, Won Kno and Anisa Shyti provided research assistance. Support from HEC Foundation, Nova Forum and Fundação para a Ciência e Tecnologia is gratefully acknowledged.

Supplementary material

11238_2014_9417_MOESM1_ESM.pdf (634 kb)
Supplementary material 1 (pdf 634 KB)

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  • Thomas Åstebro
    • 1
  • José Mata
    • 2
  • Luís Santos-Pinto
    • 3
  1. 1.HEC ParisParisFrance
  2. 2.Nova School of Business and EconomicsLisbonPortugal
  3. 3.Faculty of Business and EconomicsUniversity of LausanneLausanneSwitzerland

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