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Identifying Risk and Ambiguity Preferences Free from Context

English title Identifying Risk and Ambiguity Preferences Free from Context
Applicant Biener Christian
Number 189021
Funding scheme Project funding
Research institution Institut für Versicherungswirtschaft Universität St. Gallen
Institution of higher education University of St.Gallen - SG
Main discipline Economics
Start/End 01.12.2019 - 30.11.2022
Approved amount 529'787.00
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Keywords (6)

real-world behavior; risk; ambiguity; beliefs; preferences; experiment

Lay Summary (German)

Lead
Risiko und Unsicherheit prägen praktisch jede ökonomische Entscheidung und theoretische Modelle der Ökonomie basieren auf Annahmen darüber, inwiefern Menschen bereit sind, diese zu akzeptieren. Für die ökonomische Analyse von Märkten und die Politikgestaltung ist ein fundamentales Verständnis individueller Präferenzen notwendig. Die Validität und Vorhersagegenauigkeit für Entscheidungen in Märkten verschiedener experimenteller Methoden zur Erhebung von Risiko- und Unsicherheitspräferenzen ist jedoch unzureichend erforscht.
Lay summary
Inhalt und Ziel des Forschungsprojekts

Ziel dieses Forschungsprojektes ist es, Gemeinsamkeiten und Eigenheiten verschiedener Präferenz-Erhebungsmethoden zu verstehen, um bessere empirische Instrumente mit theoretischem Fundament zu entwickeln. Eine mögliche Erklärung der Inkonsistenz von Risiko- und Unsicherheitspräferenzmassen bei der Erklärung von Entscheidungen in Märkten könnte in kontext-spezifischen Eigenschaften von Erhebungsmethoden liegen. In diesem Forschungsprojekt schlagen wir ein Rahmenwerk für eine einheitliche Erhebung von Präferenzen vor, welches wir empirisch validieren.

Wissenschaftlicher und gesellschaftlicher Kontext

Unser Projekt leistet einen Beitrag zum Verständnis beschreibender und vorhersagender Fähigkeiten von Entscheidungstheorien für ökonomische Entscheidungen in Märkten. Unsere Ergebnisse sind damit relevant für die Weiterentwicklung ökonomischer Theorie, die Erklärung von verhaltensökonomischen Rätseln und die Politikgestaltung. Darüber hinaus werden unsere Ergebnisse der Forschungsgemeinschaft in Form einer Software zur Erhebung von Präferenzmassen zugänglich gemacht. Ein vereinfachtes praxisorientiertes Erhebungsverfahren soll die Kundenberatung verbessern. 
Direct link to Lay Summary Last update: 07.10.2019

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Abstract

Risk and (Knightian) uncertainty are pervasive in real-life economic decisions and economic theory heavily relies on assumptions about the extent to which people are willing to accept either. A better understanding of preferences, beliefs, constraints, and rationality of agents is thus critical for economic analysis and policy prescriptions. In particular, the validity of the variety of experimental methodologies to elicit risk and ambiguity attitudes and their predictive accuracy with regard to real-world decisions remains poorly understood.We are interested in commonalities and contextualities of risk and ambiguity attitudes elicited via distinct experimental methodologies to design a set of theoretically-motivated empirical tools to improve measurement of economic preferences. In particular, we aim at advancing the descriptive validity of preference measures across different domains of risky and uncertain decision making. A possible explanation for the “inconsistency” of risk and ambiguity preference measures in explaining real-world economic choices may lie in the domain-specificity of the experimental measures. Furthermore, both the presentation format as well as the way uncertainty is resolved commonly vary across risk and ambiguity elicitation tasks. In this research, we propose, apply, and validate a unified framework to measure both types of preferences. We divide our proposal into three main work packages:1. Design of a unifying framework for eliciting risk and ambiguity preferences and subjective beliefs: This first work package aims at developing a robust set of measurement methods for risk and ambiguity preferences, as well as subjective beliefs. In particular, we exploit potential domain conditionalities of preference measures and avoid differences in presentation format and resolution of uncertainty. The outcome will be an optimized toolbox for elicitation of economic primitives - a toolbox that will eventually also be made available to the research community.2. Development of a theoretical model of contextuality and robust measure- ment technologies: Within this work package, we will develop a theoretical model of contextuality. Thereby we will make explicit the most central factors of context in the situations we consider. Besides permitting comparative static analyses of contextual factors on estimated preferences, this model will enable us to structurally isolate a common component of risk and ambiguity attitudes from domain-specificalities and mistakes.3. Explaining and predicting real-world choices under uncertainty: This third work package applies the approach developed in the first and second work package to elicit economic preferences and beliefs of a representative population in Denmark and link this experimentally obtained data to real-world insurance choices and high-quality public register data. This part of the project will shed more light on demand frictions in insurance markets, but also test the predictive ability of our preference measures and contextual attributes. The impact will be both scientific and use-inspired.
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