On individual risk preference measurement: models adaption and evaluation for an Indonesia context

Abstract

The purpose of this research is to adapt and to evaluate five distinct models which are capable to measure risk preferences for an Indonesia context. Those models are: a) a risk attitude model by using a lottery technique; b) strength of preference by using mid-value splitting; c) an intrinsic risk attitude model, and two separate psychometric-based models. An empirical study is carried out (n = 30) with respondents of owners of clothing business in Indonesia. Goodness-of-fit tests for respective models indicate positive results with low errors (as indicated by MSE) and high explanatory power (R2). It suggests that the datasets generally confirm the underlying assumptions of each model. Using Spearman tests, convergent validities are observable for risk attitude vs. strength of preference, risk attitude vs. intrinsic risk attitude, risk attitude vs. psychometric. Results of this study extend the current body of literature pertaining evaluation of individual risk preference measurement.