Paper by Han Bleichrodt and alumnus Paul van Bruggen accepted for The Review of Economics and Statistics
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.
Han Bleichrodt and Paul van Bruggen, “The Reflection Effect for Higher Order Risk Preferences”, The Review of Economics and Statistics, forthcoming, https://doi.org/10.1162/rest_a_00980.