Measuring Risk Attitudes Controlling for Personality Traits*

Abstract: This study measures risk attitudes using two paid experiments: the Holt and Laury (2002) procedure and a variation of the game show Deal or No Deal. The participants also completed a series of personality questionnaires developed in the psychology literature including the risk domains of Weber, Blais, and Betz (2002). As in previous studies risk attitudes vary within subjects across elicitation methods. However, this variation can be explained by individual personality traits. Specifically, subjects behave as though the Holt and Laury task is an investment decision while the Deal or No Deal task is a gambling decision

Numerical Computation of Equilibrium Bid Functions in a First-Price Auction with Heterogeneous Risk Attitudes

We use numerical methods to compute Nash equilibrium (NE) bid functions for four agents bidding in a first-price auction. Each bidder i is randomly assigned: ri ɛ [0, rmax], where 1 − ri is the Arrow-Pratt measure of constant relative risk aversion. Each ri is independently drawn from the cumulative distribution function Φ(ċ), a beta distribution on [0, rmax]. For various values of the maximum propensity to seek risk, rmax, the expected value of any bidder's risk characteristic, E(ri), and the probability that any bidder is risk seeking, P(ri > 1), we determine the nonlinear characteristics of the (NE) bid functions. Copyright Kluwer Academic Publishers 1998auctions, equilibrium bidding, numerical analysis,