Risk Attitudes of Children and Adults: Choices Over Small and Large Probability Gains and Losses |
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Authors: | William T Harbaugh Kate Krause Lise Vesterlund |
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Institution: | (1) University of Oregon and N.B.E.R, Eugene, Oregon 97403-1285, USA;(2) University of New Mexico, Albuquerque, New Mexico 87131-1101, USA;(3) University of Pittsburgh, Pittsburgh, PA 15260, USA |
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Abstract: | In this paper we examine how risk attitudes change with age. We present participants from age 5 to 64 with choices between simple gambles and the expected value of the gambles. The gambles are over both gains and losses, and vary in the probability of the non-zero payoff. Surprisingly, we find that many participants are risk seeking when faced with high-probability prospects over gains and risk averse when faced with small-probability prospects. Over losses we find the exact opposite. Children's choices are consistent with the underweighting of low-probability events and the overweighting of high-probability ones. This tendency diminishes with age, and on average adults appear to use the objective probability when evaluating risky prospects. |
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Keywords: | probability weighting subjective expected utility prospect theory children risk |
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