Endowment Effects and Loss Aversion in the Risky Investment Game

Arbeitspapier

The risky investment game of Gneezy and Potters (1997) has been a popular tool used to estimate risk tolerance and myopic loss aversion. We have assessed whether a simple one-shot version of this game that is attractive as a simple tool to elicit risk tolerance among respondents with limited education, can lead to biased estimates of risk aversion due to endowment effects. We use a field experiment with a pool of young business group members with limited education to test for the potential bias associated with the initial endowment allocation. We find a highly significant endowment effect which may explain low investment levels and exaggerated measures of risk aversion where this game has been used to estimate risk aversion. We develop and test a more balanced version of the risk investment game and demonstrate that it gives less bias due to endowment effects than the standard design and a full risk design that creates an endowment effect in the opposite direction, indicating that loss aversion may not be the primary cause of the endowment effect.

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• ISBN: 978-82-7490-284-8
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Centre for Land Tenure Studies Working Paper ; No. 01/20

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Field Experiments ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
• Thema: Endowment effect ; loss aversion ; gender difference ; risky investment game ; field experiment ; Ethiopia

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Holden, Stein T. ; Tilahun, Mesfin
• Ereignis: Veröffentlichung
• (wer): Norwegian University of Life Sciences (NMBU), Centre for Land Tenure Studies (CLTS)
• (wo): Ås
• (wann): 2020

Weitere Informationen

• Handle: http://hdl.handle.net/10419/242781