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
JournalThe Review of Economics and Statistics
DOIs
Publication statusE-pub ahead of print - Oct 2020

Keywords

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

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