Abstract:

Risk attitude is a significant element in decision theory and, in particular, in insurance. Based on a theory-driven experiment, this paper examines at a within-subject level whether the risk attitudes elicited using the standard Holt and Laury (HL) procedure [2002] correlate with those inferred from insurance decisions. Our findings highlight the high consistency of risk attitudes assessed using HL and hedging procedures: for more than two-thirds of the rational subjects, both measures lead to the same risk-attitude assignment. Moreover, the risk aversion intensity measured with HL provides a fair estimate of the extent of the demand for coverage.

Co-authored with Corcos A., and C. Montmarquette.