A Simple Method of Elicitation of Preferences under Risk

Abstract

This study estimates the utility of lotteries and the degree of loss aversion applying the parametric method proposed by \citet{abde08} to preferences observed in a computer-based experiment conducted at Universidade de Bras\'{i}lia. Most participants displayed risk aversion for gain prospects and risk propensity for loss prospects. Real incentives for loss prospects led to a greater concavity of the utility function than the one estimated by \citet{abde08}. We observed reversals in behavior toward risk in the presence of a certain gain or loss in the prospect. Moreover, three different measures of loss aversion are discussed and, when applied to the experimental data, they were more appropriate with its theoretical definition than the most widely used measure of \citet{tver92}