Reconsidering Risk Aversion

Risk aversion is typically inferred from real or hypothetical choices over risky lotteries, but such “untutored” choices may reflect mistakes rather than preferences. We develop a procedure to disentangle preferences from mistakes: after eliciting untutored choices, we confront participants with their choices that are inconsistent with expected-utility axioms (broken down enough to be self-evident) and allow them to reconsider their choices. We demonstrate this procedure via a survey about hypothetical retirement investment choices administered to 596 Cornell students. We find that, on average, reconsidered choices are more consistent with almost all expected-utility axioms, with one exception related to regret.