Template-Type: ReDIF-Paper 1.0
Title: An experimental methodology testing for prudence and third-order preferences
Author-Name: Sebastian Ebert
Author-Email: eberts@uni-bonn.de
Author-Name: Daniel Wiesen
Author-Email: daniel.wiesen@uni-bonn.de 
Classification-JEL: D81, C91 
Keywords: Decision making under uncertainty, risk preferences, prudence, downside risk, 
	statistical moments, laboratory experiment	
Abstract: We propose an experimental method to test individuals for 
	prudence (i.e. downside risk aversion) outside the expected 
	utility framework. Our method relies on a novel representation 
	of compound lotteries which allows for a systematic 
	parameterization that captures the full generality of 
	prudence. Therefore, we develop a general technique 
	for lottery calibration in experiments. Since we 
	investigate a very subtle third-order property we test 
	our method in the laboratory employing a factorial design. 
	We find that it yields robust results and that prudence 
	is observed on the aggregate as well as on the individual 
	level. Further we show that preferences based on statistical 
	moments, in particular skewness seeking, can at most approximately 
	explain individuals' behavior in the experiment. 
Note: 
Length: 45
Creation-Date: 2009-09
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse21_2009.pdf
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse21_2009