NANCY Seminar – Olivier L’HARIDON (Université de Rennes)

Event details :

Title: Complexity and higher-order risk preferences

Abstract: To what extent do elicited higher-order risk preferences reflect underlying preferences rather than the cognitive representation of the elicitation task? Evidence on risk aversion, prudence, and temperance varies substantially across tasks and experimental designs. While this variation may reflect preference heterogeneity or choice noise, we investigate whether it is also related to differences in task complexity. In a laboratory experiment, we vary several components of complexity, including the number of final outcomes, the compound or reduced presentation of lotteries, the presence of a safe option, and the richness of the payoff environment. To measure complexity independently of final choices, we use a revealed measure based on the choice process. Our results indicate that the number of outcomes and the number of lottery stages have nonlinear effects on elicited risk preferences. Overall, elicited risk aversion, prudence and, to a lesser extent, temperance tend to decrease with complexity. These findings suggest that measured higher-order risk preferences can be sensitive to their representation and that different dimensions of complexity should be considered jointly when designing decision experiments.