treatment) allows us to validate the risk behavior induced by our experimental procedure in the light of the above-mentioned gambling evidence. In the context treatment, subjects were confronted with risky choices in two different decision contexts. Subjects ï¬rst had to complete a series of investment decisions. They were then presented with a series of identical choices, this time, however, framed as insur- ance decisions. Each investment and insurance decision incorporated a choice between a risky lottery and a certain payoff. With the series of choices implemented in the two frames we elicited our subjectsâ certainty equivalents for the same four risky lotteries (L1, L2, L3, L4) in both contexts.3 We implemented two frames in the context treatment in order to measure the risk propensity of subjects toward both perceived gains and perceived losses.4 In both frames, all possible payoffs for each decision were positive. In the investment frame these payoffs were also presented as gains, while in the insurance frame the same payoffs were presented as losses relative to an initial endowment. Therefore, elicited certainty equivalents in the investment frame measure subjectsâ risk propensities in the gain domain, while certainty equivalents in the insurance frame measure risk propensity
American Economic Review – American Economic Association
Published: May 1, 1999
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