On skewed risks in economic models and experiments
Ebert,Sebastian
Ebert,Sebastian
Abstract
Many of the most significant risks that people face in their lives are left-skewed, i.e., imply large losses with only small probability. I characterize skewness in binary risks, which are widely applied in both economic models and experiments. Moreover, I provide an explicit re-parametrization of binary risks in terms of their first three moments. These results allow for the conducting of comparative statics analysis with regard to skewness, and provide a useful tool for the calibration of lotteries in experiments. I apply them to show that left-skewed background risks give rise to a very strong precautionary saving motive, and to collect additional laboratory evidence on skewness preference and risk-seeking behavior.
Description
Date
2015-04
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
Catastrophic risks, Lottery experiments, Precautionary saving, Risk aversion, Skewness, Skewness preference, C81 - Methodology for Collecting, Estimating, and Organizing Microeconomic Data ; Data Access, D81 - Criteria for Decision-Making under Risk and Uncertainty, G1 - General Financial Markets, C90 - General
Citation
Ebert, S 2015, 'On skewed risks in economic models and experiments', Journal of Economic Behavior & Organization, vol. 112, pp. 85-97. https://doi.org/10.1016/j.jebo.2015.01.003