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Risk Averters that Love Risk? Marginal Risk Aversion in Comparison to a Reference Gamble
Author(s) -
Just David R.,
Lybbert Travis J.
Publication year - 2009
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2009.01273.x
Subject(s) - risk aversion (psychology) , marginal utility , economics , econometrics , valuation (finance) , loss aversion , variance (accounting) , expected utility hypothesis , actuarial science , microeconomics , financial economics , finance , accounting
We propose an analytical distinction between standard risk aversion based on the valuation of a single gamble and marginal risk aversion based on the change in valuation between two gambles. We measure marginal risk aversion in two dimensions—mean and variance. Data from a field experiment is used to study marginal risk aversion. Our results suggest that individuals rely on a reference gamble when assessing marginal risk. Individual responses to marginal changes in mean and variance are nearly identical in direction and magnitude—suggesting that information on both standard and marginal risk aversion is needed to accurately model behavior.