Hostname: page-component-6898cfcb55-cbk24 Total loading time: 0 Render date: 2026-11-11T09:36:49.326Z Has data issue: false hasContentIssue false

Risk breeds risk aversion

Published online by Cambridge University Press:  14 March 2025

Tai-Sen He*
Affiliation:
Division of Economics, School of Social Sciences, Nanyang Technological University, Singapore, Singapore
Fuhai Hong*
Affiliation:
Department of Economics, Lingnan University, Hong Kong, ChinaDivision of Economics, School of Social Sciences, Nanyang Technological University, Singapore, Singapore

Abstract

We examine whether exposure to a more or less risky environment affects people’s subsequent risk-taking behavior. In a laboratory setting, all subjects went through twelve rounds of multiple-price-list decisions between a risky alternative and a safe alternative. In the first six rounds, subjects were randomly assigned to a high-, moderate-, or low-risk environment, which differed in the variances of the lotteries they were exposed to. In the last six rounds, subjects in all treatments made decisions on an identical set of lotteries. We found that subjects who had experienced a riskier environment exhibited a higher degree of risk aversion. Our experimental design allows us to conclude that this effect is driven by the risk environment per se, rather than the realized outcomes of the risk. This finding has important theoretical and policy implications.

Information

Type
Original Paper
Copyright
Copyright © 2017 Economic Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

Supplementary material: File

He and Hong supplementary material

Online Appendix
Download He and Hong supplementary material(File)
File 888.5 KB