The reflection effect for higher order risk preferences

Han Bleichrodt, Paul van Bruggen

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Higher order risk preferences are important determinants of economic behaviour. We apply insights from behavioural economics: we measure higher order risk preferences for pure gains and losses. We find a reflection effect not only for second order risk preferences, like Kahneman and Tversky (1979), but also for higher order risk preferences: we find risk aversion, prudence and intemperance for gains, and much more risk loving preferences, imprudence and temperance for losses. These findings are at odds with a universal preference for combining good with bad or good with good, which previous results suggest may underlie higher order risk preferences.
Original languageEnglish
Pages (from-to)705-717
JournalThe Review of Economics and Statistics
Volume104
Issue number4
DOIs
Publication statusPublished - Jul 2022

Keywords

  • risk apportionment
  • higher order risk preferences
  • risk aversion
  • prudence
  • temperance
  • reference dependence

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