Seminar: Higher order risk preferences and economic decisions

Thursday 21 September 2023, 12:20 pm - 1:20 pm

In theory, individuals’ higher order risk attitudes of prudence and temperance influence saving and investment decisions. Prudent individuals save more when their future income becomes more uncertain, and temperate individuals prefer less risky investments in the presence of greater background risks. In a controlled experiment, we measure individuals’ higher order risk attitudes directly, using two different elicitation methods. Participants then make saving and investment decisions under varying levels of background risk. We find strong evidence for background risk effects on saving and investment. Moreover, individual prudence measures correlate with the strength of precautionary saving, while individual temperance measures do not do so with investment. The risk attitudes acquired with the two elicitation methods are strongly correlated with each other. The representative individual is risk averse and prudent, and neutral towards temperance.

Portret Prof. dr. Stefan Trautmann

Stefan Trautmann received his PhD in Economics from the Erasmus University Rotterdam in 2009. He was a post-doc at the Department of Social Psychology at Tilburg University for two years, and then became an assistant professor and subsequently tenured associate professor at the Department of Economics at Tilburg University. In 2014 he was appointed full professor of Behavioral Finance at Heidelberg University. Stefan Trautmann is an associate editor at various journals, including Management Science, Journal of Economic Psychology and PLOS ONE. His research interests concern financial decision making under uncertainty, social preferences and ethics, and the psychology of economic decision making more generally. His work has been published in leading economics, finance and psychology outlets such as the American Economic Review, Psychological Science, and Management Science.

Thursday 21 September 2023, 12:20 pm - 1:20 pm
prof. dr. Stefan Trautmann (Associate Professor TiSEM: Tilburg School of Economics and Management)
EOS 01.150