Predictive powers of tests of risk and loss Aversion in a principal-agent context: an Experiment
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Date
2018
Authors
Abken, Amre
Journal Title
Journal ISSN
Volume Title
Publisher
Nazarbayev University School of Sciences and Humanities
Abstract
The goal of this experimental study is to demonstrate that the test of loss-aversion has a superior predictive power than the standard test of risk-aversion over behavior in risky situations that involve potential losses, e.g. agent's decision in a principal-agent context. Since participant's loss-aversion and risk-aversion affect the results of the loss-aversion test in one direction, the results of that test contains combined information on agent's preferences regarding risks and losses. On the other hand, test of risk- aversion only reflects the attitude towards risks and becomes redundant for prediction of agent's behavior in principal-agent setting when test of loss-aversion is conducted. A three-stage experiment consisted of eliciting a proxy for the curvature of agent's utility curve over wealth, eliciting a proxy for the loss-aversion of an agent, and eliciting the willingness of an agent to take a costly action for an uncertain reward.
Description
Keywords
risk-aversion, loss-aversion
Citation
Abken, Amre. (2018) Predictive powers of tests of risk and loss Aversion in a principal-agent context: an Experiment. Nazarbayev University School of Humanities and Social Sciences