Risk Aversion and Information Acquisition Across Real and Hypothetical Settings
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I collect data on subjects' information acquisition during real and hypothetical risky choices using process-tracing software called Mouselab. I also measure subjects' cognitive ability using the cognitive reflective test (CRT). On average, measured risk preferences are not significantly different across real and hypothetical settings. However, cognitive ability is inversely related to risk aversion when choices are hypothetical, but it is unrelated when the choices are real. This interaction between cognitive ability and hypothetical setting is consistent with the notion that some individuals, specifically higher-ability individuals, treat hypothetical choices as "puzzles" and may help explain why some studies find that subjects indicate that they are more tolerant of risk when they make hypothetical choices than when they make real choices. On average, subjects demonstrate a similar degree of consistency across settings, and there are also no significant differences across settings in the amount of time subjects take to make a choice, the amount of information they acquire, or how they distribute their attention. I also find evidence to suggest that subjects acquire information in a manner consistent with the implicit calculation of expected utility. Specifically, individuals do not merely make choices "as if" they are integrating probabilities and outcomes, it appears that they actually are. Moreover, as they progress through a series of choices in a commonly used risk preference elicitation method, their information acquisition becomes progressively more consistent with integration models. Finally, on average, individuals appear to acquire information in real and hypothetical settings in similar ways.