Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey

David Huffman, IZA, Bonn

This paper presents new evidence on the distribution of risk attitudes in the population, using
a novel set of survey questions and a representative sample of roughly 22,000 individuals
living in Germany. Using a question that asks about willingness to take risks on an 11-point
scale, we find evidence of heterogeneity across individuals, and show that willingness to take
risks is negatively related to age and being female, and positively related to height and
parental education. We test the behavioral relevance of this survey measure by conducting a
complementary field experiment, based on a representative sample of 450 subjects, and find
that the measure is a good predictor of actual risk-taking behavior. We then use a more
standard lottery question to measure risk preference, and find similar results regarding
heterogeneity and determinants of risk preferences. The lottery question makes it possible to
estimate the coefficient of relative risk aversion for each individual in the sample. Using five
questions about willingness to take risks in specific domains — car driving, financial matters,
sports and leisure, career, and health — the paper also studies the impact of context on risk
attitudes, finding a strong but imperfect correlation across contexts. Using data on a
collection of risky behaviors from different contexts, including traffic offenses, portfolio choice,
smoking, occupational choice, participation in sports, and migration, the paper compares the
predictive power of all of the risk measures. Strikingly, the general risk question predicts all
behaviors whereas the standard lottery measure does not. The best overall predictor for any
specific behavior is typically the corresponding context-specific measure. These findings call
into the question the current preoccupation with lottery measures of risk preference, and
point to variation in risk perceptions as an understudied determinant of risky behavior.

Date: 27 September-00 0000