Bleichrodt, H. and van Bruggen, P. (2022). The Reflection Effect for Higher-Order Risk Preferences Review of Economics and Statistics, 104(4):705--717.
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Affiliated author
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Publication year2022
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JournalReview of Economics and Statistics
Higher-order risk preferences are important determinants of economic behavior. We apply insights from behavioral economics: we measure higher-order risk preferences for pure gains and losses. We find a reflection effect not only for second-order risk preferences, as did Kahneman and Tversky (1979), but also for higher-order risk preferences: we find risk aversion, prudence and intemperance for gains and much more risk-loving preferences, imprudence and temperance for losses. These findings are at odds with a universal preference for combining good with bad or good with good, which previous results suggest may underlie higher-order risk preferences.