O' Sole Mio An Experimental Analysis of Weather and Risk ...
Transcript of O' Sole Mio An Experimental Analysis of Weather and Risk ...
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
O’ Sole MioAn Experimental Analysis of Weather and Risk
Attitudes
Anna Bassi, Riccardo Colacito, and Paolo Fulghieri
VCU, 04/30/2012
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Motivation
1 Economics Literature: personal characteristics and risk attitudes
Cox and Harrison (2008) measuring risk aversion;Benjamin, Choi, and Fisher (2010): Protestants more risk-averse thanCatholics.Men less risk averse than women (Eckel and Grossman, 2007 for acomprehensive survey.Lower risk aversion for younger (Dohmen et al., 2010) and wealthier(Guiso and Paiella, 2008) individuals.
2 Finance Literature: weather affects assets’ prices
Saunders (1993), Hirshleifer and Shumway (2003): stock returns arenegative when cloudy in city where stocks are exchanged.Kamstra, Kramer, and Levi (2003) seasonal variations in stock returns arecorrelated with variations in the exposure to sunlight of different countries.Lo and Wu (2010) analyst forecasts are more pessimistic in the fall.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Motivation
1 Economics Literature: personal characteristics and risk attitudes
Cox and Harrison (2008) measuring risk aversion;Benjamin, Choi, and Fisher (2010): Protestants more risk-averse thanCatholics.Men less risk averse than women (Eckel and Grossman, 2007 for acomprehensive survey.Lower risk aversion for younger (Dohmen et al., 2010) and wealthier(Guiso and Paiella, 2008) individuals.
2 Finance Literature: weather affects assets’ prices
Saunders (1993), Hirshleifer and Shumway (2003): stock returns arenegative when cloudy in city where stocks are exchanged.Kamstra, Kramer, and Levi (2003) seasonal variations in stock returns arecorrelated with variations in the exposure to sunlight of different countries.Lo and Wu (2010) analyst forecasts are more pessimistic in the fall.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Weather, mood, and risks taking
1 Psychology Literature: impact of sunlight and weather on human mood:
Sanders and Brizzolara, 1982: good mood & low levels of humidity;Cunnigham, 1979; Parrot and Sabini, 1990; and Schwartz and Clore,1983: good mood & high levels of sunlight;Cunnigham, 1979; Howarth and Hoffman, 1984: good mood & hightemperature.
2 Mechanism: what is the process by which mood affects humanbehavior?
Cognitive evaluation channel : Mood→ cognitive behavior→ decisionmaking (Isen, 2000);Risk tolerance channel : Mood→ risk preferences (link betweenanxiety/depression and “sensation seeking” measures - proxy forrisk-taking behavior-. (Eisenberg et al., 1998)).
3 Our approach: Explicit link between sunlight/weather on risk attitudes
Controlled laboratory experiments in which subjects are randomizedbetween sessions with good and bad weather.Subjects are presented with sets of lottery pairs to elicit their risk attitude.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Weather, mood, and risks taking
1 Psychology Literature: impact of sunlight and weather on human mood:
Sanders and Brizzolara, 1982: good mood & low levels of humidity;Cunnigham, 1979; Parrot and Sabini, 1990; and Schwartz and Clore,1983: good mood & high levels of sunlight;Cunnigham, 1979; Howarth and Hoffman, 1984: good mood & hightemperature.
2 Mechanism: what is the process by which mood affects humanbehavior?
Cognitive evaluation channel : Mood→ cognitive behavior→ decisionmaking (Isen, 2000);Risk tolerance channel : Mood→ risk preferences (link betweenanxiety/depression and “sensation seeking” measures - proxy forrisk-taking behavior-. (Eisenberg et al., 1998)).
3 Our approach: Explicit link between sunlight/weather on risk attitudes
Controlled laboratory experiments in which subjects are randomizedbetween sessions with good and bad weather.Subjects are presented with sets of lottery pairs to elicit their risk attitude.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Weather, mood, and risks taking
1 Psychology Literature: impact of sunlight and weather on human mood:
Sanders and Brizzolara, 1982: good mood & low levels of humidity;Cunnigham, 1979; Parrot and Sabini, 1990; and Schwartz and Clore,1983: good mood & high levels of sunlight;Cunnigham, 1979; Howarth and Hoffman, 1984: good mood & hightemperature.
2 Mechanism: what is the process by which mood affects humanbehavior?
Cognitive evaluation channel : Mood→ cognitive behavior→ decisionmaking (Isen, 2000);Risk tolerance channel : Mood→ risk preferences (link betweenanxiety/depression and “sensation seeking” measures - proxy forrisk-taking behavior-. (Eisenberg et al., 1998)).
3 Our approach: Explicit link between sunlight/weather on risk attitudesControlled laboratory experiments in which subjects are randomizedbetween sessions with good and bad weather.Subjects are presented with sets of lottery pairs to elicit their risk attitude.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Experimental Design
Controlled experiment where subjects were exposed to differentweather conditions (treatments).
Between-subject design
Randomization: we scheduled twin pairs of experimental sessions perweek in days with diametrically opposed weather forecasts.Subjects need to register to both the twin sessions and then they wererandomly allocated to one of the two sessions.
Within-subjects treatments
Payoff treatments (High/Low);Tasks treatments (Risk/Skewness/Risk+Skewness).
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Experimental Design
Controlled experiment where subjects were exposed to differentweather conditions (treatments).
Between-subject design
Randomization: we scheduled twin pairs of experimental sessions perweek in days with diametrically opposed weather forecasts.Subjects need to register to both the twin sessions and then they wererandomly allocated to one of the two sessions.
Within-subjects treatments
Payoff treatments (High/Low);Tasks treatments (Risk/Skewness/Risk+Skewness).
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Experimental Design
Controlled experiment where subjects were exposed to differentweather conditions (treatments).
Between-subject design
Randomization: we scheduled twin pairs of experimental sessions perweek in days with diametrically opposed weather forecasts.Subjects need to register to both the twin sessions and then they wererandomly allocated to one of the two sessions.
Within-subjects treatments
Payoff treatments (High/Low);Tasks treatments (Risk/Skewness/Risk+Skewness).
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Experimental Procedures
The experiment was conducted by paper and pencil in a largeclassroom with windows.
Target number of participants equal to 15.
We recruited 140 subjects (UNC e-recruit subject pool: students &employees) from March 2011 to February 2012.
Upon arrival, subjects were seated at workplaces placed throughout theclassroom so that subjects could not see what others subjects weredoing and they could not be seen by others.
First, subjects ran the three tasks treatments with low payoffs first, andthen with high payoffs.
Last, subjects were asked to complete a questionnaire.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Experimental Procedures
The experiment was conducted by paper and pencil in a largeclassroom with windows.
Target number of participants equal to 15.
We recruited 140 subjects (UNC e-recruit subject pool: students &employees) from March 2011 to February 2012.
Upon arrival, subjects were seated at workplaces placed throughout theclassroom so that subjects could not see what others subjects weredoing and they could not be seen by others.
First, subjects ran the three tasks treatments with low payoffs first, andthen with high payoffs.
Last, subjects were asked to complete a questionnaire.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Experimental Procedures
The experiment was conducted by paper and pencil in a largeclassroom with windows.
Target number of participants equal to 15.
We recruited 140 subjects (UNC e-recruit subject pool: students &employees) from March 2011 to February 2012.
Upon arrival, subjects were seated at workplaces placed throughout theclassroom so that subjects could not see what others subjects weredoing and they could not be seen by others.
First, subjects ran the three tasks treatments with low payoffs first, andthen with high payoffs.
Last, subjects were asked to complete a questionnaire.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Experimental Procedures
The experiment was conducted by paper and pencil in a largeclassroom with windows.
Target number of participants equal to 15.
We recruited 140 subjects (UNC e-recruit subject pool: students &employees) from March 2011 to February 2012.
Upon arrival, subjects were seated at workplaces placed throughout theclassroom so that subjects could not see what others subjects weredoing and they could not be seen by others.
First, subjects ran the three tasks treatments with low payoffs first, andthen with high payoffs.
Last, subjects were asked to complete a questionnaire.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Experimental Procedures
The experiment was conducted by paper and pencil in a largeclassroom with windows.
Target number of participants equal to 15.
We recruited 140 subjects (UNC e-recruit subject pool: students &employees) from March 2011 to February 2012.
Upon arrival, subjects were seated at workplaces placed throughout theclassroom so that subjects could not see what others subjects weredoing and they could not be seen by others.
First, subjects ran the three tasks treatments with low payoffs first, andthen with high payoffs.
Last, subjects were asked to complete a questionnaire.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Experimental Procedures
The experiment was conducted by paper and pencil in a largeclassroom with windows.
Target number of participants equal to 15.
We recruited 140 subjects (UNC e-recruit subject pool: students &employees) from March 2011 to February 2012.
Upon arrival, subjects were seated at workplaces placed throughout theclassroom so that subjects could not see what others subjects weredoing and they could not be seen by others.
First, subjects ran the three tasks treatments with low payoffs first, andthen with high payoffs.
Last, subjects were asked to complete a questionnaire.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Questionnaire
Age, Gender, Marital status, Employment status
Income: Personal income, Family income
Education: Major, year, highest education of parents
Voting: vote cast in last election, intention to vote in next
Risky actions: gambling, playing lotteries
Religion
Political leaning:
Happiness
Weather: today and tomorrow
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Defining Weather
We use three definitions/measures:
1 Amount of Sunlight
2 Amount of Precipitation
3 Subjective Assessment
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Defining Weather
We use three definitions/measures:
1 Amount of Sunlight
2 Amount of Precipitation
3 Subjective Assessment
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Defining Weather
We use three definitions/measures:
1 Amount of Sunlight→ Clear sky is good weather
2 Amount of Precipitation
3 Subjective Assessment
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Defining Weather
We use three definitions/measures:
1 Amount of Sunlight→ Clear sky is good weather
→ Overcast/Precipitation is bad weather
2 Amount of Precipitation
3 Subjective Assessment
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Defining Weather
We use three definitions/measures:
1 Amount of Sunlight→ Clear sky is good weather
→ Overcast/Precipitation is bad weather
2 Amount of Precipitation
3 Subjective Assessment
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Defining Weather
We use three definitions/measures:
1 Amount of Sunlight→ Clear sky is good weather
→ Overcast/Precipitation is bad weather
2 Amount of Precipitation→ Precipitation less than average is good weather
3 Subjective Assessment
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Defining Weather
We use three definitions/measures:
1 Amount of Sunlight→ Clear sky is good weather
→ Overcast/Precipitation is bad weather
2 Amount of Precipitation→ Precipitation less than average is good weather
→ Precipitation more than average is bad weather
3 Subjective Assessment
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Defining Weather
We use three definitions/measures:
1 Amount of Sunlight→ Clear sky is good weather
→ Overcast/Precipitation is bad weather
2 Amount of Precipitation→ Precipitation less than average is good weather
→ Precipitation more than average is bad weather
3 Subjective Assessment
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Defining Weather
We use three definitions/measures:
1 Amount of Sunlight→ Clear sky is good weather
→ Overcast/Precipitation is bad weather
2 Amount of Precipitation→ Precipitation less than average is good weather
→ Precipitation more than average is bad weather
3 Subjective Assessment→ How do you feel about the Weather?
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Baseline treatment
Multiple Price Listing
Baseline Holt & Laury, 2002 treatments (with 1x payoffs)
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Holt & Laury, 2002 MPL
Option A Option B
Decision 1 : $2.00 w.p 10% , $1.60 w.p 90% $3.85 w.p 10% , $0.10 w.p 90%
Decision 2 : $2.00 w.p 20% , $1.60 w.p 80% $3.85 w.p 20% , $0.10 w.p 80%
Decision 3 : $2.00 w.p 30% , $1.60 w.p 70% $3.85 w.p 30% , $0.10 w.p 70%
Decision 4 : $2.00 w.p 40% , $1.60 w.p 60% $3.85 w.p 40% , $0.10 w.p 60%
Decision 5 : $2.00 w.p 50% , $1.60 w.p 50% $3.85 w.p 50% , $0.10 w.p 50%
Decision 6 : $2.00 w.p 60% , $1.60 w.p 40% $3.85 w.p 60% , $0.10 w.p 40%
Decision 7 : $2.00 w.p 70% , $1.60 w.p 30% $3.85 w.p 70% , $0.10 w.p 30%
Decision 8 : $2.00 w.p 80% , $1.60 w.p 20% $3.85 w.p 80% , $0.10 w.p 20%
Decision 9 : $2.00 w.p 90% , $1.60 w.p 10% $3.85 w.p 90% , $0.10 w.p 10%
Decision 10 : $2.00 w.p 100% , $1.60 w.p 0% $3.85 w.p 100% , $0.10 w.p 0%
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Moments
Option A Option B
Exp Var Skew Kurt Exp Var Skew Kurt
Decision 1 : 1.64 0.01 2.67 8.11 0.48 1.27 2.67 8.11
Decision 2 : 1.68 0.03 1.50 3.25 0.85 2.25 1.50 3.25
Decision 3 : 1.72 0.03 0.87 1.76 1.23 2.95 0.87 1.76
Decision 4 : 1.76 0.04 0.41 1.17 1.60 3.38 0.41 1.17
Decision 5 : 1.80 0.04 0.00 1.00 1.98 3.52 0.00 1.00
Decision 6 : 1.84 0.04 -0.41 1.17 2.35 3.38 -0.41 1.17
Decision 7 : 1.88 0.03 -0.87 1.76 2.73 2.95 -0.87 1.76
Decision 8 : 1.92 0.03 -1.50 3.25 3.10 2.25 -1.50 3.25
Decision 9 : 1.96 0.01 -2.67 8.11 3.48 1.27 -2.67 8.11
Decision 10 : 2.00 0.00 - - 3.85 0.01 - -
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Average Risk Aversion
50
60
70
80
90
100
of Option A choices
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10
Percen
tage
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Average Risk Aversion
50
60
70
80
90
100
of Option A choices
Panel A: The Effect of Clear/Overcast on Risk Aversion
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10
Percen
tage
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Average Risk Aversion
50
60
70
80
90
100
of Option A choices
Panel A: The Effect of Clear/Overcast on Risk Aversion
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10
Percen
tage
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Amount of Sunlight and Risk Aversion
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Amount of Sunlight and Risk Aversion
50
60
70
80
90
100
of Option A choices
Panel A: The Effect of Clear/Overcast on Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10
Percen
tage
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Amount of Sunlight and Risk Aversion
50
60
70
80
90
100
of Option A choices
Panel A: The Effect of Clear/Overcast on Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10
Percen
tage
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Amount of Sunlight and Risk Aversion
50
60
70
80
90
100
of Option A choices
Panel A: The Effect of Clear/Overcast on Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10
Percen
tage
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Precipitation and Risk Aversion
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Precipitation and Risk Aversion
50
60
70
80
90
100
Option A choices
Panel B: The Effect of Precipitation on Risk Aversion
Direction of increasing Risk Aversion
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10
Percen
tage of O
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Subjective Weather and Risk Aversion
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Subjective Weather and Risk Aversion
50
60
70
80
90
100
of Option A choices
Panel C: The Effect of Subjective Weather Assessment on Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
Direction of increasing Risk Aversion
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10
Percen
tage
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Are these differences statistically significant?
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Are these differences statistically significant?
Table: Average Frequencies of Safe ChoicesClear/Overcast Precipitation Subjective Weather
Bad Weather 0.575 0.622 0.572
Good Weather 0.509 0.526 0.511
[p− values] [0.008] [0.001] [0.035]
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
What is the marginal effect of weather?
Focus on decisions 4-7 to maximize statistical power.
Run a logit regression.
Standard errors calculated with block bootstrap.
Control for weather and other personal characteristics
ReligiousnessSexPolitical LeaningWealthRace...
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
What is the marginal effect of weather?
Focus on decisions 4-7 to maximize statistical power.
Run a logit regression.
Standard errors calculated with block bootstrap.
Control for weather and other personal characteristics
ReligiousnessSexPolitical LeaningWealthRace...
13 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
What is the marginal effect of weather?
Focus on decisions 4-7 to maximize statistical power.
Run a logit regression.
Standard errors calculated with block bootstrap.
Control for weather and other personal characteristics
ReligiousnessSexPolitical LeaningWealthRace...
13 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
What is the marginal effect of weather?
Focus on decisions 4-7 to maximize statistical power.
Run a logit regression.
Standard errors calculated with block bootstrap.
Control for weather and other personal characteristics
ReligiousnessSexPolitical LeaningWealthRace...
13 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
What is the marginal effect of weather?
Focus on decisions 4-7 to maximize statistical power.
Run a logit regression.
Standard errors calculated with block bootstrap.
Control for weather and other personal characteristics
ReligiousnessSexPolitical LeaningWealthRace...
13 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Logit - Risk Aversion
One variable Precipitation Overcast-Clear Subjective Weather
at a time + controls + controls + controls
Precipitation 0.080∗∗∗ 0.080∗∗∗
Overcast-Clear 0.052∗∗∗ 0.051∗∗∗
Subjective Weather (Bad-Good) 0.054∗∗∗ 0.051∗∗∗
Income 0.000 0.000 0.000∗ 0.000
Religious (Yes-No) −0.068∗∗ 0.000 −0.044∗ −0.046∗
Political Leaning 0.029∗ 0.000 0.053∗∗ 0.054∗∗
(Liberal-Conservative)
Gender (Male-Female) 0.026
RaceWhite/Caucasian −0.090∗∗∗
Asian 0.027
Play lotteries (Yes-No) 0.000
Economy concerned (No-Yes) −0.024∗
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Amount of Sunlight and Risk Aversion
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10
Esti
mat
ed
pro
bab
ility
of
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Op
tio
n A
Panel A: The Effect of Clear/Overcast on Risk Aversion
Direction of increasing Risk Aversion
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Precipitation and Risk Aversion
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10
Esti
mat
ed
pro
bab
ility
of
cho
osi
ng
Op
tio
n A
Panel B: The Effect of Precipitation on Risk Aversion
Direction of increasing Risk Aversion
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Subjective Weather and Risk Aversion
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10
Esti
mat
ed
pro
bab
ility
of
cho
osi
ng
Op
tio
n A
Panel C: The Effect of Subjective Weather Assessment on Risk Aversion
Direction of increasing Risk Aversion
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
High Payoffs
What happen when the stakes are higher?
Subjects repeat the task with 10x payoffs.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Amount of Sunlight and Risk Aversion
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10
Pe
rce
nta
ge o
f O
pti
on
A c
ho
ice
s
Panel A: The Effect of Clear/Overcast on Risk Aversion (High Payoffs)
Direction of increasing Risk Aversion
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Precipitation and Risk Aversion
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10
Pe
rce
nta
ge o
f O
pti
on
A c
ho
ice
s
Panel B: The Effect of Precipitation on Risk Aversion (High Payoffs)
Direction of increasing Risk Aversion
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Subjective Weather and Risk Aversion
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10
Pe
rce
nta
ge o
f O
pti
on
A c
ho
ice
s
Panel C: The Effect of Subjective Weather Assessment on Risk Aversion (High Payoffs)
Direction of increasing Risk Aversion
18 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Hypothesis testing: Are these differencesstatistically significant?
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Hypothesis testing: Are these differencesstatistically significant?
Table: Average Frequencies of Safe ChoicesClear/Overcast Precipitation Subjective Weather
Bad Weather 0.705 0.756 0.700
Good Weather 0.629 0.650 0.619
[p− values] [0.014] [0.003] [0.041]
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Logit - High Payoffs
One variable Precipitation Overcast-Clear Subjective Weather
at a time + controls + controls + controls
Precipitation 0.063∗∗∗ 0.063∗∗∗
Overcast-Clear 0.053∗∗∗ 0.051∗∗∗
Subjective Weather (Bad-Good) 0.037∗∗ 0.037∗∗
Income 0.000∗ 0.000 0.000 0.001∗
Religious (Yes-No) 0.010 0.000 0.011 0.008
Political Leaning 0.012 0.000 −0.003 −0.001(Liberal-Conservative)
Gender (Male-Female) 0.031
RaceWhite/Caucasian −0.017Asian −0.098∗∗
Play lotteries (Yes-No) 0.000
Economy concerned (No-Yes) −0.034∗∗
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Amount of Sunlight and Risk Aversion
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10
Esti
mat
ed
pro
bab
ility
of
cho
osi
ng
Op
tio
n A
Panel A: The Effect of Clear/Overcast on Risk Aversion (High Payoffs)
Direction of increasing Risk Aversion
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Precipitation and Risk Aversion
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10
Esti
mat
ed
pro
bab
ility
of
cho
osi
ng
Op
tio
n A
Panel B: The Effect of Precipitation on Risk Aversion (High Payoffs)
Direction of increasing Risk Aversion
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Subjective Weather and Risk Aversion
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10
Esti
mat
ed
pro
bab
ility
of
cho
osi
ng
Op
tio
n A
Panel C: The Effect of Subjective Weather Assessment on Risk Aversion (High Payoffs)
Direction of increasing Risk Aversion
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Relative Risk Aversion
Estimate the preference parameters of the “power-expo” utility function;
U(x) =1−exp{−αx1−r}
α
This specification nests the cases of
constant relative risk aversion (α→ 0)constant absolute risk aversion (r → 0)
Arrow-Pratt Relative risk aversion
−U ′′(x) · xU ′(x)
= r +α(1− r)x1−r .
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Relative Risk Aversion
Estimate the preference parameters of the “power-expo” utility function;
U(x) =1−exp{−αx1−r}
α
This specification nests the cases of
constant relative risk aversion (α→ 0)constant absolute risk aversion (r → 0)
Arrow-Pratt Relative risk aversion
−U ′′(x) · xU ′(x)
= r +α(1− r)x1−r .
24 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Relative Risk Aversion
Estimate the preference parameters of the “power-expo” utility function;
U(x) =1−exp{−αx1−r}
α
This specification nests the cases of
constant relative risk aversion (α→ 0)constant absolute risk aversion (r → 0)
Arrow-Pratt Relative risk aversion
−U ′′(x) · xU ′(x)
= r +α(1− r)x1−r .
24 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Relative Risk Aversion
Estimate the preference parameters of the “power-expo” utility function;
U(x) =1−exp{−αx1−r}
α
This specification nests the cases of
constant relative risk aversion (α→ 0)constant absolute risk aversion (r → 0)
Arrow-Pratt Relative risk aversion
−U ′′(x) · xU ′(x)
= r +α(1− r)x1−r .
24 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Relative Risk Aversion Estimation
To better fit the smooth probability profiles, we adopt a probabilisticchoice rule where µ is a noise parameter:
Prob (chooseA) =U1/µ
A
U1/µA +U1/µ
B
Maximum likelihood estimation for α, r , and µ
25 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Relative Risk Aversion Estimation
To better fit the smooth probability profiles, we adopt a probabilisticchoice rule where µ is a noise parameter:
Prob (chooseA) =U1/µ
A
U1/µA +U1/µ
B
Maximum likelihood estimation for α, r , and µ
25 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Relative Risk Aversion Estimation
To better fit the smooth probability profiles, we adopt a probabilisticchoice rule where µ is a noise parameter:
Prob (chooseA) =U1/µ
A
U1/µA +U1/µ
B
Maximum likelihood estimation for α, r , and µ
25 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Relative Risk Aversion Estimate
AllSubjective Weather Precipitation Clear-Overcast
Good Bad Good Bad Good Bad
r 0.372 0.305 0.355 0.309 0.511 0.295 0.402
[0.001] [0.003] [0.001] [0.001] [0.001] [0.001] [0.001]
α 0.146 0.106 0.172 0.109 0.330 0.084 0.200
[0.001] [0.001] [0.001] [0.000] [0.002] [0.000] [0.001]
µ 0.132 0.212 0.112 0.145 0.078 0.156 0.115
[0.000] [0.001] [0.000] [0.000] [0.000] [0.000] [0.000]
RRA 0.532 0.441 0.551 0.448 0.760 0.406 0.605
(Low Payoffs) 25.1% 69.6% 49.0%
RRA 1.051 0.979 1.223 0.990 1.280 0.860 1.207
(High Payoffs) 97.5%† 24.9% 29.2% 40.3%
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Skewness
Paired lotteries have same variance (and Kurtosis);
Expected value for skewness reduction compensation.
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Skewness MPL
Option A Option B
Decision 1 : $1.00 w.p 10% , $3.00 w.p 90% $0.20 w.p 90% , $2.20 w.p 10%
Decision 2 : $1.00 w.p 20% , $3.00 w.p 80% $0.20 w.p 80% , $2.20 w.p 20%
Decision 3 : $1.00 w.p 30% , $3.00 w.p 70% $0.20 w.p 70% , $2.20 w.p 30%
Decision 4 : $1.00 w.p 40% , $3.00 w.p 60% $0.20 w.p 60% , $2.20 w.p 40%
Decision 5 : $1.00 w.p 50% , $3.00 w.p 50% $0.20 w.p 50% , $2.20 w.p 50%
Decision 6 : $1.00 w.p 60% , $3.00 w.p 40% $0.20 w.p 40% , $2.20 w.p 60%
Decision 7 : $1.00 w.p 70% , $3.00 w.p 30% $0.20 w.p 30% , $2.20 w.p 70%
Decision 8 : $1.00 w.p 80% , $3.00 w.p 20% $0.20 w.p 20% , $2.20 w.p 80%
Decision 9 : $1.00 w.p 90% , $3.00 w.p 10% $0.20 w.p 10% , $2.20 w.p 90%
Decision 10 : $1.00 w.p 100% , $3.00 w.p 0% $0.20 w.p 0% , $2.20 w.p 100%
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Skewness moments
Option A Option B
Exp Var Skew Kurt Exp Var Skew Kurt
Decision 1 : 2.80 0.36 -2.67 8.11 0.40 0.36 2.67 8.11
Decision 2 : 2.60 0.64 -1.50 3.25 0.60 0.64 1.50 3.25
Decision 3 : 2.40 0.84 -0.87 1.76 0.80 0.84 0.87 1.76
Decision 4 : 2.20 0.96 -0.41 1.17 1.00 0.96 0.41 1.17
Decision 5 : 2.00 1.00 0.00 1.00 1.20 1.00 0.00 1.00
Decision 6 : 1.80 0.96 0.41 1.17 1.40 0.96 -0.41 1.17
Decision 7 : 1.60 0.84 0.87 1.76 1.60 0.84 -0.87 1.76
Decision 8 : 1.40 0.64 1.50 3.25 1.80 0.64 -1.50 3.25
Decision 9 : 1.20 0.36 2.67 8.11 2.00 0.36 -2.67 8.11
Decision 10 : 1.00 0.00 - - 2.20 0.00 - -
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Skewness Aversion - Low payoffs
Panel A: Low Payoffs
One variable Precipitation Overcast-Clear Subjective Weather
at a time + controls + controls + controls
Precipitation 0.042∗∗ 0.042∗∗
Overcast-Clear 0.020 0.027∗
Subjective Weather 0.023 0.032∗∗
(Bad-Good)
Income 0.003∗∗∗ 0.000 0.004∗∗∗ 0.004∗∗∗
Religious 0.026 0.000 0.034 0.033
Political Leaning −0.023 0.000 −0.018 −0.019
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Skewness Aversion - High payoffs
Panel B: High Payoffs
One variable Precipitation Overcast-Clear Subjective Weather
at a time + controls + controls + controls
Precipitation 0.051∗∗∗ 0.051∗∗∗
Overcast-Clear 0.025∗ 0.031∗∗
Subjective Weather 0.034∗∗ 0.040∗∗
(Bad-Good)
Income 0.001∗∗ 0.000 0.001∗∗ 0.001∗∗∗
Religious 0.051∗ 0.000 0.081∗∗∗ 0.081∗∗∗
Political Leaning 0.027 0.000 0.058∗∗ 0.057∗∗
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Concluding Remarks
Bad weather⇒ more risk aversion;
Good weather⇒ more risk seeking;
Risk attitudes vary dramatically at high frequencies;
Economic and financial consequences (consumption decisions,investments decisions, etc)!!!
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Concluding Remarks
Bad weather⇒ more risk aversion;
Good weather⇒ more risk seeking;
Risk attitudes vary dramatically at high frequencies;
Economic and financial consequences (consumption decisions,investments decisions, etc)!!!
29 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Concluding Remarks
Bad weather⇒ more risk aversion;
Good weather⇒ more risk seeking;
Risk attitudes vary dramatically at high frequencies;
Economic and financial consequences (consumption decisions,investments decisions, etc)!!!
29 / 29
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Introduction Design Descriptive Analysis Statistical Analysis High payoffs RRA Skewness Conclusion
Concluding Remarks
Bad weather⇒ more risk aversion;
Good weather⇒ more risk seeking;
Risk attitudes vary dramatically at high frequencies;
Economic and financial consequences (consumption decisions,investments decisions, etc)!!!
29 / 29