Speaker: Hong Il Yoo, Loughborough University
Time: 2024/12/4, 13:30-15:00 (Beijing Time)
Title: Structural Estimation of Higher Order Risk Attitudes
Venue: 106 Zhonghui Building
Abstract:
The structural measures of higher-order risk attitudes have well-developed foundations in Expected Utility Theory (EUT), but little is known about their empirical magnitudes. We propose a novel experimental design to study third- and fourth-order risk attitudes, known as prudence and temperance. This design allows us to estimate a flexible non-parametric utility function, distinguishing prudence and temperance from the usual notion of risk aversion. Accounting for interpersonal heterogeneity and behavioral errors, we find that EUT measures of prudence and temperance exhibit patterns of variation masked by common parametric constraints regarding their interdependence with risk aversion. We also consider Rank-Dependent Utility (RDU), a major generalization of EUT, and observe that EUT and RDU predictions gradually converge as the order of risk increases, practically coinciding for fourth-order risks. These findings remain robust across subsamples of moderate sizes, suggesting our approach could be adopted in broader studies linking prudence and temperance to economic behavior.
About the speaker:
Hong Il Yoo is a Professor in Economics at Loughborough University (UK). Previously, he was a Professor of Economics at Durham University (UK), where he had also worked as an Assistant and Associate Professor.
Most of his research sits at the intersection of behavioural economics, econometrics, and health economics. He develops econometric methods for discrete choice data that enable one to infer people's preferences from their stated and revealed choices. His work in behavioural economics uses revealed choices in laboratory and field experiments to study the subject's risk, time, and ambiguity preferences. His work in health economics uses stated responses to best-worst scaling and discrete choice experiments to study the respondent's health-related preferences.
