Risk Attitudes of Children and Adults : Choices over Small and Large Probability Gains and Losses

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Title: Risk Attitudes of Children and Adults : Choices over Small and Large Probability Gains and Losses
Author: Harbaugh, William; Krause, Kate; Vesterlund, Lise
Abstract: In this paper we examine how risk attitudes change with age. We present participants from age 5 to 64 with choices between simple gambles and the expected value of the gambles. The gambles are over both gains and losses, and vary in the probability of the non-zero payoff. Surprisingly, we find that many participants are risk seeking when faced with high-probability prospects over gains and risk averse when faced with small-probability prospects. Over losses we find the exact opposite. Children’s choices are consistent with the underweighting of low-probability events and the overweighting of high-probability ones. This tendency diminishes with age, and on average adults appear to use the objective probability when evaluating risky prospects.
Description: 45 p.
URI: http://hdl.handle.net/1794/694
Date: 2001-11-05


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