- Measuring risk attitudes in a natural experiment: Data from the television game show LINGO
- Tilburg: University of Limburg ; Maastricht University
- CEPR Discussion Paper
- Volume | Edition (Serie)
- 1893 AND 9808
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
We use data from a television game show, involving elementary lotteries and substantial prize money, as a natural experiment to measure risk attitudes. We find robust evidence of substantial risk aversion. As an extension, we estimate the various models using transformations of the 'true' probabilities to decision weights. The estimated degree of risk aversion increases further, while players tend to overestimate substantially their chances of winning. Constant Relative Risk Aversion (CRRA) and Constant Absolute Risk Aversion (CARA) utility specifications perform approximately equally well, with CARA having the advantage that the players' decisions do not depend on their initial wealth.
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