A Simple Approach for Measuring Higher-Order Risk Attitudes

Wednesday, 29 Nov 2023

10.30 am - 12 noon

Venue: NTU Gaia ABS Meeting Room 7 (ABS-03-008) 

Chairperson: Prof Shinichi Kamiya

 

Abstract

While the importance of the Arrow-Pratt coefficients of second order risk aversion is well established in economics, the importance of higher-order risk attitudes has only recently begun to be recognized. In this paper, we introduce a non-parametric approach to directly measure higher-order Arrow-Pratt coefficients using choices between compound lotteries and show how it can be easily implemented in behavioral studies. Specifically, we provide a theoretical basis for using risk apportionment to reveal the intensity of higher-order risk attitudes, and then draw upon our theoretical results to develop a simple, systematic, and generalizable procedure for eliciting Arrow-Pratt coefficients of prudence, temperance, and other higher-order risk atti¬tudes. We demonstrate our approach in a laboratory experiment and find that the modal subject exhibits mild prudence and mild temperance in addition to mild risk aversion. Further, we find that degrees of risk aversion are positively correlated across orders. Finally, while our approach is non-parametric, we note that behavior is broadly consistent with subjects having utility described by the exponential-power function.

 

About the Speaker

Professor Rachel J. Huang joined National Central University in 2014 as a professor of finance and was promoted to the position of distinguished professor in 2018. She holds a Ph.D. in finance from National Taiwan University. Prior to her current position at National Central University, Professor Huang was an associate professor of finance at National Taiwan University of Science and Technology, Yuan Ze University, and Ming Chuang University.

Professor Huang's research has focused on risk theory, asymmetric information, and behavioral insurance. Her research has appeared in Management Science, Operations Research, Journal of Economic Theory, Economic Theory, Journal of Banking and Finance, Journal of Empirical Finance, Journal of Financial Services Research, The Journal of Risk and Insurance, Insurance: Mathematics and Economics, and Geneva Risk and Insurance Review, among others. According to Heck (2014), Dr. Huang is ranked as the fourth most prolific contributing author in the world in the three elite risk management and insurance journals during the past ten years (2004-2013).

In 2012 and 2013, Dr. Huang was awarded the 2012 Taiwan Risk and Insurance Association Early Career Award and the 2013 American Risk and Insurance Association Early Career Award, respectively. She was named the winner of the Outstanding Research Award at National Taiwan University of Science and Technology.

She served as a board member of the American Risk and Insurance Association from 2013 to 2016. She currently serves as an Associate Editor for the Journal of Risk and Insurance and the Geneva Risk and Insurance Review. Additionally, she is an independent board member of First Financial Holding Co., Ltd. and First Commercial Bank in Taiwan.