Abstract

Many economic and financial decisions involve risk. A crucial question in this context
is how much risk people are willing to take. The importance of measuring the willingness of people to take risk is acknowledged by Dutch law, which requires financial
institutions to take into account their customers’ risk preferences when offering products and services. Additionally, knowledge of participants’ risk preferences play an
important role in the recent pension agreement in the Netherlands, since it requires
pension providers to invest in line with the age composition and risk attitudes of
participants.
Here we discuss the concept of risk preferences and common ways to measure
them as proposed in the economics literature. We summarize traditional and
behavioral economics perspectives on decisions under risk. Next, we present several
incentivized experimental measures and non-incentivized survey measures of risk
preferences and describe how they correlate with field behavior, and we discuss
advantages and disadvantages of the different methods. We also discuss what is
known, according to the economics literature, about the relationship between risk
preferences and age.
Original languageEnglish
Place of PublicationTilburg
PublisherNetspar
Number of pages45
Publication statusPublished - 2021

Publication series

SeriesNetspar Survey Paper
Volume58

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