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Understanding Risk Aversion: Insights into Multiple Risks and Human Behavior

This work explores the unique definition of risk aversion and how it is influenced by multiple correlated risks. The study delves into various attitudes towards single and multi-attributive risks, as presented by Dorfleitner and Krapp (2007), highlighting the limited research in behavioral responses to multiple risks. It discusses the violation of marginality assumptions in utility functions and examines correlation aversion in both monetary and non-monetary contexts. The findings present implications for understanding vulnerability and the effectiveness of policies aimed at reducing risk, particularly in areas like food insecurity.

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Understanding Risk Aversion: Insights into Multiple Risks and Human Behavior

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Presentation Transcript

  1. AnkeLeroux To people,multiple risks matter!

  2. Unique definition of risk aversion • Good understanding of human behaviour when exposed to single risky prospect Single risk

  3. Multi-attributive risk attitude defined in several ways (Dorfleitner and Krapp 2007) • Few studies of behaviour under multiple risks: correlation of risks matters • Marginality assumption violated in additively separable multi-attribute utility functions (von Winterfeldt 1980) • Correlation aversion over ‘money now’ versus ‘money later’(Andersen et al. 2011) • Correlation aversion over non-monetary risky outcomes (Gangadharan, Harrison, Leroux, Raschky, preliminary) Multiple risks

  4. People are averse to risks being correlated above and beyond their attitude towards individual risk Experimental evidence

  5. People are averse to risks being correlated above and beyond their attitude towards individual risk How may this help us understand vulnerability?

  6. IC Nutritional Intake

  7. IC P[food insecure] Nutritional Intake

  8. IC P[food insecure] Nutritional Intake

  9. IC P[food insecure] Nutritional Intake

  10. IC P[food insecure] Nutritional Intake

  11. IC ? P[food insecure] Nutritional Intake

  12. More research needed! • Uptake of policies designed to reduce vulnerability • Insurance Implications?

  13. Thank you!

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