What can multiple price lists really tell us about risk preferences?

Abstract

Multiple price lists have emerged as a simple and popular method for eliciting risk preferences. Despite their popularity, a key downside of multiple price lists has not been widely recognized -namely that the approach is unlikely to generate sufficient information to accurately identify different dimensions of risk preferences. The most popular theories of decision making under risk posit that preference for risk are driven by a combination of two factors: the curvature of the utility function and the extent to which probabilities are weighted nonlinearly. In this paper, we show that the widely used multiple price list introduced by Holt and Laury (2002) is likely more accurate at eliciting the latter, and we introduce a different multiple price list that is likely more accurate at eliciting the former. We show that by combining information from different multiple price lists, greater predictive performance can be achieved.

Eliciting utility curvature in time preference

“…26 For example, in their re-analysis of the data of Holt and Laury (2005), Harrison and Rutström (2008, Table 8) estimate the same rank-dependent specification-with CRRA utility and a Tversky and Kahneman (1992) weighting function-as Drichoutis and Lusk (2016). In this specification, Harrison and Rutström do not find significant non-linear probability weighting, while their point estimate of the CRRA coefficient is actually (insignificantly) larger than in the corresponding expected utility specification.…”

“…Therefore, just as assuming linear utility may cause estimates of the discount rate to be biased in choice over time, assuming linear probability weighting may cause estimates of the utility function to be biased in choice under risk. Indeed, Drichoutis and Lusk (2016) claim that risk aversion in HL tasks may be solely a product of probability weighting as opposed to utility curvature: in their estimates of a rank-dependent…”

Consumers’ Willingness to Pay for Foods with Traceability Information: Ex-Ante Quality Assurance or Ex-Post Traceability?

“…However, the MPL requires the researchers to set the price ranges prior to the implementation of the experiment, which could cause the bias that consumers' WTP would be affected by the price range set in the preliminary stage. Furthermore, the MPL lacks market bidding procedures, which limits the motivation effect of an experiment [35,36].…”

Expectations and Stock Market Participation: Theory and Evidence

“…I elicit risk aversion using a multiple-price list (MPL) as in Drichoutis and Lusk (2016). A MPL provides a list of safe and risky lotteries to subjects and asks them to choose between them.…”