• Economics
  • Published 2009

An experimental methodology testing for prudence and third-order preferences

@inproceedings{Ebert2009AnEM,
  title={An experimental methodology testing for prudence and third-order preferences},
  author={Sebastian Ebert and Daniel Wiesen},
  year={2009}
}
We propose an experimental method to test individuals for prudence (i.e. downside risk aversion) outside the expected utility framework. Our method relies on a novel representation of compound lotteries which allows for a systematic parameterization that captures the full generality of prudence. Therefore, we develop a general technique for lottery calibration in experiments. Since we investigate a very subtle third-order property we test our method in the laboratory employing a factorial… CONTINUE READING

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