Higher Order Risk Preferences: Novel Method, New Measures, Determinants and Field Behavior

Animated Graph Showing the Number of Regressions where Risk Aversion is a Significant Explanatory Variable of Field Behavior - With and without Accounting for Higher Order Risk Preferences.

Abstract

We present and use a novel method to elicit and measure the intensities of higher order risk preferences (prudence and temperance) in an experiment with 658 adolescents. In line with theory, we find that higher order risk preferences are strongly related to adolescents' field behavior, including prevention, health-related, and addictive behavior, involving amongst others excessive smartphone usage, or financial decision making. Most importantly, we illustrate how ignoring prudence and temperance might yield largely misleading conclusions about the relation of risk preferences to field behavior. Thus we can put previous work that ignored higher order risk preferences into an encompassing perspective.

Publication
Discussion Papers of the Max Planck Institute for Research on Collective Goods, 2020/22

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