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- Title
Testing for Prudence and Skewness Seeking.
- Authors
Ebert, Sebastian; Wiesen, Daniel
- Abstract
Numerous theoretical predictions such as precautionary saving or preventive behavior have been derived for prudent decision makers. Further, prudence can be characterized as downside risk aversion and plays a key role in preference for skewness. We use a simple experimental method to test for prudence and skewness preference in the laboratory and compare the two. To this end, we introduce a novel graphical representation of compound lotteries that is easily accessible to subjects and test it for robustness, using a factorial design. Prudence is observed on the aggregate and individual level. We find that prudence does not boil down to skewness seeking. We further provide some theoretical explanations for this result.
- Subjects
RISK aversion; UTILITY theory; RISK -- Mathematical models; GRAPHIC methods; FACTORIAL experiment designs; FACTOR analysis; MANAGEMENT science
- Publication
Management Science, 2011, Vol 57, Issue 7, p1334
- ISSN
0025-1909
- Publication type
Article
- DOI
10.1287/mnsc.1110.1354