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- Creators: Economics Program in CLAS
- Creators: Dean, W.P. Carey School of Business
- Resource Type: Text
o binomial options regarding the participant’s willingness to participate in a specific deal. The study was broken into three blocks, the first of which dealt with the framing effect and the subsequent two considered loss aversion. Of the data collected, there were multiple significant results found to support the framing effect and loss aversion. There was a significant difference between responses that were positively and negatively framed, and between varying upside potential in equivalent-risk scenarios. For block one, those participants who received the positive framing condition were more likely to invest in the master’s program than those who received the negative framing condition. For blocks two and three, the majority of participants exhibited loss averse behavior more extreme than the predicted amounts; closer to 4x the upside was required (rather than the predicted 2x) for the participants to participate in the deal. Although the results did replicate the framing effect and loss aversion, college students were more loss averse than was predicted.
The field of behavioral economics explores the ways in which individuals make choices under uncertainty, in part, by examining the role that risk attitudes play in a person’s efforts to maximize their own utility. This thesis aims to contribute to the body of economic literature regarding risk attitudes by first evaluating the traditional economic method for discerning risk coefficients by examining whether students provide reasonable answers to lottery questions. Second, the answers of reasonable respondents are subject to our economic model using the CRRA utility function in which Python code is used to make predictions of the risk coefficients of respondents via a two-step regression procedure. Lastly, the degree to which the economic model provides a good fit for the lottery answers given by reasonable respondents is discerned. The most notable findings of the study are as follows. College students had extreme difficulty in understanding lottery questions of this sort, with Medical and Life Science majors struggling significantly more than both Business and Engineering majors. Additionally, gender was correlated with estimated risk coefficients, with females being more risk-loving relative to males. Lastly, in regards to the model’s goodness of fit when evaluating potential losses, the expected utility model involving choice under uncertainty was consistent with the behavior of progressives and moderates but inconsistent with the behavior of conservatives.