Risk aversion and framing effects

Abstract

International audienceWe present a new experimental evidence of how framing affects decisions in the context of a lottery choice experiment for measuring risk aversion. We investigate framing effects by replicating the Holt and Laury's (Am. Econ. Rev. 92:1644-1655, 2002) procedure for measuring risk aversion under various frames. We first examine treatments where participants are confronted with the 10 decisions to be made either simultaneously or sequentially. The second treatment variable is the order of appearance of the ten lottery pairs. Probabilities of winning are ranked either in increasing, decreasing, or in random order. Lastly, payoffs were increased by a factor of ten in additional treatments. The rate of inconsistencies was significantly higher in sequential than in simultaneous treatment, in increasing and random than in decreasing treatment. Both experience and salient incentives induce a dramatic decrease in inconsistent behaviors. On the other hand, risk aversion was significantly higher in sequential than in simultaneous treatment, in decreasing and random than in increasing treatment, in high than in low payoff condition. These findings suggest that subjects use available information which has no value for normative theories, like throwing a glance at the whole connected set of pairwise choices before making each decision in a connected set of lottery pairs

Decision-Making under Risk of Loss in Children

“…We detected a framing effect; children starting with high probabilities of gain exchanged more than children starting with low probabilities of gain. Variations in framing are known to affect significantly decisions and risk-aversion in adults [39], [40]. Individuals are risk-averse when presented with value-increasing options, but more risk-taking when faced with decreasing values [41]–[43].…”

“…Individuals are risk-averse when presented with value-increasing options, but more risk-taking when faced with decreasing values [41]–[43]. Recent studies have reported that behavioral responses to framing may vary according to the set-up used [40]. For example, high incentives to win can have more impact on risk aversion than low incentives.…”

Do Preference Reversals Disappear When We Allow for Probabilistic Choice?

“…17 One disadvantage is that responses appear to be susceptible to various systematic framing effects connected to the ranges and frequencies selected by the researcher and the order in which rows are presented. Parducci (1965) provides an early discussion of range-frequency effects, Levy-Garboua et al (2012) and Loomes and Pogrebna (2014a) report such effects in tables intended to elicit risk attitudes, and Sanchez Martinez et al (2015) find evidence of such effects in the context of health state evaluation. Of course, if decisions are the result of some process of sampling and accumulation, it would not be surprising to find that "cues" provided by MPLs are liable to have various systematic effects.…”

Measuring risk aversion with lists: a new bias

“…In other experiments, Chetan Dave et al (2010) consider the effect of differing degrees of difficulty. Framing effects are reported in Mark Isaac and Duncan James (2000) and Louis Lévy-Garboua et al (2012). Our robustness test yields a different type of confound.…”