Attitudes Toward Risk: Theoretical Implications of an Experiment in Rural India

A relatively simple but fairly large-scale experiment, designed to measure attitudes toward risk, was carried out in rural India. The subjects were 330 individuals who participated in a sequence of games with real and high pay-offs. Results indicated that when payoffs are small, almost 50% of the re...

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Bibliographic Details
Published in:The Economic journal (London) 1981-12, Vol.91 (364), p.867-890
Main Author: Binswanger, Hans P.
Format: Article
Language:English
Subjects:
Absolute
Attitudes
Behavior
Behavior modeling
Decision making
Economic models
Economic utility
Functions
Games
Income distribution
Mathematical models
Measurement
Modeling
Risk
Risk aversion
Rural
Utility
Utility functions
Utility models
Wealth
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Summary:A relatively simple but fairly large-scale experiment, designed to measure attitudes toward risk, was carried out in rural India. The subjects were 330 individuals who participated in a sequence of games with real and high pay-offs. Results indicated that when payoffs are small, almost 50% of the respondents are in the intermediate and moderate risk-aversion categories; when game levels rise, the proportion of individuals in those categories rises until it reaches 80% of all respondents, and near neutral and risk-preferring behavior virtually disappear. Several models of behavior under risk were then examined to compare the consistency of the study findings with a varied set of theoretical predictions. It was found the only models which are not inconsistent with the experimental evidence are the safety-fixed model with income integration and the safety principle with income integration; their survival is due to the fact they offer no prediction whatsoever unless personal probability targets and the subjective probability distribution of initial income and its derivatives are known. It was also found that utility models' assumption of asset integration is inconsistent with the experimental evidence. Figures.
ISSN:0013-0133
1468-0297
DOI:10.2307/2232497