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Andersen, S., Cox, J. C., Harrison, G. W., Lau, M. I., Rutström, E. & Sadiraj, V. (2018). Asset Integration and Attitudes toward Risk: Theory and Evidence. Review of Economics and Statistics, 100(5), 816-830
Open this publication in new window or tab >>Asset Integration and Attitudes toward Risk: Theory and Evidence
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2018 (English)In: Review of Economics and Statistics, ISSN 0034-6535, E-ISSN 1530-9142, Vol. 100, no 5, p. 816-830Article in journal (Refereed) Published
Abstract [en]

We provide evidence that choices over small stakes bets are consistent with assumptions of some payoff calibration paradoxes. We then exploit the existence of detailed information on individual wealth of our experimental subjects in Denmark, and directly estimate risk attitudes and the degree of asset integration. We discover that behavior is consistent with partial, rather than full, asset integration. The implied risk attitudes from estimating these specifications indicate risk premia and certainty equivalents that are a priori plausible. This theory and evidence suggest one constructive solution to payoff calibration paradoxes.

Place, publisher, year, edition, pages
MIT Press, 2018
National Category
Economics
Identifiers
urn:nbn:se:oru:diva-68871 (URN)10.1162/rest_a_00719 (DOI)000453815900005 ()2-s2.0-85056700536 (Scopus ID)
Note

Funding Agencies:

U.S. National Science Foundation  NSF/HSD 0527675  NSF/SES 0616746  NSF/SES 0849590 

Danish Social Science Research Council  24-02-0124  275-08-0289 

Available from: 2018-09-12 Created: 2018-09-12 Last updated: 2019-01-08Bibliographically approved
Andersen, S., Harrison, G. W., Lau, M. I. & Rutström, E. (2018). Multiattribute Utility Theory, Intertemporal Utility, and Correlation Aversion. International Economic Review, 59(2), 537-555
Open this publication in new window or tab >>Multiattribute Utility Theory, Intertemporal Utility, and Correlation Aversion
2018 (English)In: International Economic Review, ISSN 0020-6598, E-ISSN 1468-2354, Vol. 59, no 2, p. 537-555Article in journal (Refereed) Published
Abstract [en]

Convenient assumptions about qualitative properties of the intertemporal utility function have generated counterintuitive implications for the relationship between atemporal risk aversion and the intertemporal elasticity of substitution. If the intertemporal utility function is additively separable, then the latter two concepts are the inverse of each other. We review a theoretical specification with a long lineage in the literature on multi-attribute utility and use this theoretical structure to guide the design of a series of experiments that allow us to identify and estimate intertemporal correlation aversion. Our results show that subjects are correlation averse over lotteries with intertemporal income profiles.

Place, publisher, year, edition, pages
Wiley-Blackwell Publishing Inc., 2018
National Category
Economics
Identifiers
urn:nbn:se:oru:diva-67340 (URN)10.1111/iere.12279 (DOI)000434114600007 ()2-s2.0-85046334543 (Scopus ID)
Note

Funding Agencies:

U.S. National Science Foundation  NSF/HSD 0527675  NSF/SES 0616746 

Danish Social Science Research Council  275-08-0289 

Carlsberg Foundation  2008-01-0410 

Available from: 2018-06-20 Created: 2018-06-20 Last updated: 2018-06-20Bibliographically approved
Andersen, S., Cox, J., Harrison, G. W., Lau, M. I., Rutström, E. & Sadiraj, V. (2017). Asset Integration and Attitudes to Risk: Theory and Evidence. Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University (2012-12)
Open this publication in new window or tab >>Asset Integration and Attitudes to Risk: Theory and Evidence
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2017 (English)Report (Other academic)
Abstract [en]

Measures of risk attitudes derived from experiments are often questioned because they are based on small stakes bets and do not account for the extent to which the decision-maker integrates the prizes of the experimental tasks with personal wealth. We exploit the existence of detailed information on individual wealth of experimental subjects in Denmark, and directly estimate risk attitudes and the degree of asset integration consistent with observed behavior. The behavior of the adult Danes in our experiment is consistent with partial asset integration: they behave as if some fraction of personal wealth is combined with experimental prizes in a utility function, and that this combination entails less than perfect substitution. Our subjects do not perfectly asset integrate. The implied risk attitudes from estimating these specifications imply risk premia and certainty equivalents that are a priori plausible under expected utility theory or rank dependent utility models. These are reassuring and constructive solutions to payoff calibration paradoxes. In addition, the rigorous, structural modeling of partial asset integration points to a rich array of neglected questions in risk management and policy evaluation in important field settings.

Place, publisher, year, edition, pages
Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, 2017. p. 89
Series
Experimental Economics Center Working Paper Series ; 2012-12
National Category
Economics and Business
Identifiers
urn:nbn:se:oru:diva-68870 (URN)
Available from: 2018-09-12 Created: 2018-09-12 Last updated: 2018-09-14Bibliographically approved
Dixit, V. V., Ortmann, A., Rutström, E. & Ukkusuri, S. V. (2017). Experimental Economics and choice in transportation: Incentives and context. Transportation Research Part C: Emerging Technologies, 77, 161-184
Open this publication in new window or tab >>Experimental Economics and choice in transportation: Incentives and context
2017 (English)In: Transportation Research Part C: Emerging Technologies, ISSN 0968-090X, E-ISSN 1879-2359, Vol. 77, p. 161-184Article in journal (Refereed) Published
Abstract [en]

This paper reviews the preconditions for successful applications of Experimental Economics methods to research on transportation problems, as new transportation and research technologies emerge. We argue that the application of properly designed incentives, the hallmark of Experimental Economics, provides a high degree of experimental control, leading to internal validity and incentive compatibility. Both of these are essential for ensuring that findings generalize to contexts outside the immediate application. New technologies, such as virtual reality simulators, can generate external validity for the experiments by providing realistic contexts. GPS and other tracking technologies, as well as smart phones, smart cards and connected vehicle technologies can allow detailed observations on actions and real-time interactions with drivers in field experiments. Proper application of these new technologies in research requires an understanding of how to maintain a high level of internal validity and incentive compatibility as external validity is increased. In this review of past applications of Experimental Economics to transportation we focus on their success in achieving external and internal validity.

Place, publisher, year, edition, pages
Elsevier, 2017
Keywords
Transportation; Experimental Economics; Induced Value Theory; Traffic equilibrium; Safety; Travel choices; Driving simulator; Virtual reality; External validity; Internal validity
National Category
Economics
Research subject
Economics
Identifiers
urn:nbn:se:oru:diva-57491 (URN)10.1016/j.trc.2017.01.011 (DOI)000398875600010 ()2-s2.0-85011934001 (Scopus ID)
Note

Funding Agencies:

United States Federal Highway Administration  DTFH61-09-H-00012

Australian Research Council  DP150103299

Available from: 2017-04-26 Created: 2017-04-26 Last updated: 2018-07-31Bibliographically approved
George, J. G., Harisson, G. W. & Rutström, E. (2015). Behavioral Responses towards Risk Mitigation: An Experiment with Wild Fire Risks. Georgia State University
Open this publication in new window or tab >>Behavioral Responses towards Risk Mitigation: An Experiment with Wild Fire Risks
2015 (English)Report (Other academic)
Abstract [en]

What are the behavioral effects of voluntary self-protection in situations where the probabilities are unknown to the agent? Virtually all naturally occurring environments of risk management involve subjective probabilities, and many allow decision makers to voluntarily mitigate risk using self-protection activities. To examine this environment we design a laboratory experiment in which incomplete information about probabilities is generated in a naturalistic way from the perspective of decision makers, but where the experimenter has complete information. Specifically, we use virtual simulations of property that is at risk of destruction from simulated wild fires. Using direct belief elicitation mechanisms we find that subjective beliefs over high and low risk scenarios underestimate the shift. Thus, predictions of voluntary self-protection activities based on such data would estimate a suboptimal willingness to invest. However, when offering subjects’ self-protection opportunities, their choices indicate that they over-estimate the risk reducing effects and would in fact be willing to pay more than if they knew the objective probabilities. These findings have direct implications for the normative evaluation of risk management policies when risk perception is subjective.

Place, publisher, year, edition, pages
Georgia State University, 2015. p. 61
Series
Center for the Economic Analysis of Risk, Working Papers ; WP 2015/04
Keywords
Risk mitigation, behavior, subjective beliefs
National Category
Economics and Business
Identifiers
urn:nbn:se:oru:diva-68878 (URN)
Available from: 2018-09-12 Created: 2018-09-12 Last updated: 2018-09-13Bibliographically approved
Dixit, V. V. V., Harb, R. C. C., Martínez-Correa, J. & Rutström, E. (2015). Measuring risk aversion to guide transportation policy: Contexts, incentives, and respondents. Transportation Research Part A: Policy and Practice, 80, 15-34
Open this publication in new window or tab >>Measuring risk aversion to guide transportation policy: Contexts, incentives, and respondents
2015 (English)In: Transportation Research Part A: Policy and Practice, ISSN 0965-8564, E-ISSN 1879-2375, Vol. 80, p. 15-34Article in journal (Refereed) Published
Abstract [en]

Road pricing may provide a solution to increasing traffic congestion in metropolitan areas. Route, departure time and travel mode choices depend on risk attitudes as commuters perceive the options as having uncertain effects on travel times. We propose that Experimental Economics methods can deliver data that uses real consequences and where the context can be varied by the researcher. The approach relies on the controlled manipulation of contexts, similar to what is done in the Stated Choice approach, but builds in actual consequences, similar to the Revealed Preference approach. This paper investigates some of the trade-offs between the cost of conducting Experimental Economics studies and the behavioral responses elicited. In particular, we compare responses to traditional lottery choice tasks to the route choice tasks in simulated driving environments. We also compare students (a low cost convenient participant pool) to field participants recruited from the driving population. While we see initial differences across our treatment groups, we find that their risk taking behavior converge with minimal repetition.

Place, publisher, year, edition, pages
Elsevier, 2015
Keywords
Congestion pricing, Risk attitudes, Contextual tasks, Experiments, Driving simulations
National Category
Economics and Business
Identifiers
urn:nbn:se:oru:diva-68844 (URN)10.1016/j.tra.2015.07.002 (DOI)000362607200002 ()2-s2.0-84938118642 (Scopus ID)
Note

Funding Agency:

Federal Highway Administration  DTFH61-09-H-00012

Available from: 2018-09-11 Created: 2018-09-11 Last updated: 2018-09-13Bibliographically approved
Harb, R. C., Rutström, E. & Xanthopoulos, P. (2015). Putting Your Money Where Your Mouth Is: Do Drivers Who Avoid Roads That Are Priced Favor Road Pricing?. Atlanta: Robinson College of Business, Georgia State University
Open this publication in new window or tab >>Putting Your Money Where Your Mouth Is: Do Drivers Who Avoid Roads That Are Priced Favor Road Pricing?
2015 (English)Report (Other academic)
Place, publisher, year, edition, pages
Atlanta: Robinson College of Business, Georgia State University, 2015
Series
Dean's Behavioral Economics Laboratory Working Paper Series ; 1502
National Category
Economics Social Sciences
Identifiers
urn:nbn:se:oru:diva-74128 (URN)
Available from: 2019-05-08 Created: 2019-05-08 Last updated: 2019-05-08Bibliographically approved
Harrison, G. W., Johnson, J. M. & Rutström, E. (2015). Risk Perceptions in the Virtual Wilderness. Georgia State University
Open this publication in new window or tab >>Risk Perceptions in the Virtual Wilderness
2015 (English)Report (Other academic)
Abstract [en]

In economic decision making most probabilities are formed in a compound manner through the interaction of multiple attributes of events, each of which have likelihoods that are unknown to various degrees. We consider how subjectively formed risk perceptions are affected by the dispersion of the underlying objective, compound probability distribution. Our methodology relies on virtual reality simulations of physical cues of the risk, allowing us to bring together the natural stimuli of the field and the control of the lab. Our application is an important example of a risk with serious economic consequences: the management of wild fire risk. This is an important natural setting where the risk is compound, depending on many random physical processes and where the formation of risk perceptions necessary for risk management is therefore complex. We find that increasing the dispersion of the underlying objective risk leads to higher subjective probabilities of the worst outcome occurring, consistent with increased pessimism. We compare the risk perceptions of experts in this domain with non-expert residents that are affected by the risk, and conclude that experts are not always better than non-experts at estimating the risks. Experts appear to be locked in by their strong priors based on stimuli outside those presented in our naturalistic virtual reality. With a global environment that produces increasingly extreme phenomena, training experts to be less anchored on their prior experiences will become important.

Place, publisher, year, edition, pages
Georgia State University, 2015. p. 50
Series
Center for the Economics Analysis of Risk, Working Papers ; WP 2015/03
National Category
Economics and Business
Identifiers
urn:nbn:se:oru:diva-68877 (URN)
Available from: 2018-09-12 Created: 2018-09-12 Last updated: 2018-09-13Bibliographically approved
Harrison, G. W., Lau, M. I. & Rutström, E. (2015). Theory, Experimental Design, and Econometrics Are Complementary (And So Are Lab and Field Experiments). In: Guillaume R. Fréchette and Andrew Schotter (Ed.), Handbook of Experimental Economic Methodology: (pp. 296-338). New York: Oxford University Press
Open this publication in new window or tab >>Theory, Experimental Design, and Econometrics Are Complementary (And So Are Lab and Field Experiments)
2015 (English)In: Handbook of Experimental Economic Methodology / [ed] Guillaume R. Fréchette and Andrew Schotter, New York: Oxford University Press, 2015, p. 296-338Chapter in book (Refereed)
Abstract [en]

This chapter proposes a systematic approach to research where theory, lab results, common sense, field data, and econometrics are all integrated into one’s research toolkit. The approach is illustrated by considering work done on an artifactual field experiment in Denmark. The chapter is organized into four sections. The section entitled “Policy Lotteries” introduces the concept of policy lotteries, giving a few examples. The section entitled “Risk Aversion” discusses how to draw inferences about risk attitudes using the systematic approach that includes conditioning these inferences on smaller-scale lab experiments, on sample selection effects and elicitation methods, on econometric and statistical strategies such as sampling frame and structural estimation approaches, and on theoretical and common sense considerations about out-of-domain predictions. The section entitled “Discount Rates” discusses inferences about discount rates and demonstrate the power of joint estimation of risk and time preferences as motivated by theory. The section entitled “Lessons Learned” expands the joint inference discussion to longitudinal issues such as temporal stability.

Place, publisher, year, edition, pages
New York: Oxford University Press, 2015
Series
The handbooks in economic methodologies series
Keywords
experimental economics, laboratory experiments, field data, econometrics, economic theory
National Category
Economics and Business
Identifiers
urn:nbn:se:oru:diva-68872 (URN)10.1093/acprof:oso/9780195328325.001.0001 (DOI)9780195328325 (ISBN)9780190202187 (ISBN)
Available from: 2018-09-12 Created: 2018-09-12 Last updated: 2018-09-14Bibliographically approved
Andersen, S., Harrison, G. W. W., Lau, M. I. & Rutström, E. (2014). Discounting behavior: A reconsideration. European Economic Review, 71, 15-33
Open this publication in new window or tab >>Discounting behavior: A reconsideration
2014 (English)In: European Economic Review, ISSN 0014-2921, E-ISSN 1873-572X, Vol. 71, p. 15-33Article in journal (Refereed) Published
Abstract [en]

We re-evaluate the theory, experimental design and econometrics behind claims that individuals exhibit non-constant discounting behavior. Theory points to the importance of controlling for the non-linearity of the utility function of individuals, since the discount rate is defined over time-dated utility flows and not flows of money. It also points to a menagerie of functional forms to characterize different types of non-constant discounting behavior. The implied experimental design calls for individuals to undertake several tasks to allow us to identify these models, and to several treatments such as multiple horizons and the effect of allowing for a front end delay on earlier payments. The implied econometrics calls for structural estimation of th`e theoretical models, allowing for joint estimation of utility functions and discounting functions. Using data collected from a representative sample of 413 adult Danes in 2009, we draw surprising conclusions. Assuming an exponential discounting model we estimate discount rates to be 9% on average. We find no evidence to support quasi-hyperbolic discounting or "fixed cost" discounting, and only modest evidence to support other specifications of non-constant discounting. Furthermore, the evidence for non-constant discounting, while statistically significant, is not economically significant in terms of the size of the estimated discount rates. We undertake extensive robustness checks on these findings, including a detailed review of the previous, comparable literature.

Place, publisher, year, edition, pages
Elsevier, 2014
Keywords
Behavioral microeconomics, Discounting behavior, Field experiments, consumption behavior, discount rate, econometrics, experimental design, microeconomics, theoretical study
National Category
Economics and Business
Identifiers
urn:nbn:se:oru:diva-68845 (URN)10.1016/j.euroecorev.2014.06.009 (DOI)000343843800002 ()2-s2.0-84908021243 (Scopus ID)
Available from: 2018-09-11 Created: 2018-09-11 Last updated: 2018-09-13Bibliographically approved
Identifiers
ORCID iD: ORCID iD iconorcid.org/0000-0001-8616-3318

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