Measuring Risk Attitudes in a Natural Experiment: Data from the Television Game Show Lingo

CEPR Discussion Paper Series Number 1893

Posted: 8 Oct 1998

See all articles by Roel M. W. J. Beetsma

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); European Commission; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute; Netspar

Peter C. Schotman

Maastricht University - Department of Finance

Date Written: June 1998

Abstract

We use data from a television game show, involving elementary lotteries and substantial prize money, as a natural experiment to measure risk attitudes. We find robust evidence of substantial risk aversion. As an extension, we esimate the various models using transformations of the etruei probabilities to decision weights. The estimated degree of risk aversion increases further, while players tend to overestimate substantially their chances of winning. Constant Relative Risk Aversion (CRRA) and Constant Absolute Risk Aversion (CARA) utility specifications perform approximately equally well, with CARA having the advantage that the players' decisions do not depend on their initial wealth.

JEL Classification: C90, D81

Suggested Citation

Beetsma, Roel M. W. J. and Schotman, Peter C., Measuring Risk Attitudes in a Natural Experiment: Data from the Television Game Show Lingo (June 1998). CEPR Discussion Paper Series Number 1893, Available at SSRN: https://ssrn.com/abstract=125509

Roel M. W. J. Beetsma (Contact Author)

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