On skewed risks in economic models and experiments

Sebastian Ebert

Research output: Contribution to journalArticleScientificpeer-review

25 Citations (Scopus)

Abstract

Many of the most significant risks that people face in their lives are left-skewed, i.e., imply large losses with only small probability. I characterize skewness in binary risks, which are widely applied in both economic models and experiments. Moreover, I provide an explicit re-parametrization of binary risks in terms of their first three moments. These results allow for the conducting of comparative statics analysis with regard to skewness, and provide a useful tool for the calibration of lotteries in experiments. I apply them to show that left-skewed background risks give rise to a very strong precautionary saving motive, and to collect additional laboratory evidence on skewness preference and risk-seeking behavior.
Original languageEnglish
Pages (from-to)85-97
JournalJournal of Economic Behavior & Organization
Volume112
DOIs
Publication statusPublished - Apr 2015

Keywords

  • Catastrophic risks
  • Lottery experiments
  • Precautionary saving
  • Risk aversion
  • Skewness
  • Skewness preference

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