Does risk aversion vary with decision-frame? An empirical test using recent game show data
Article first published online: 21 AUG 2009
Copyright © 2009 John Wiley & Sons, Ltd.
Review of Behavioral Finance
Volume 1, Issue 1-2, pages 44–61, September 2009
How to Cite
Mulino, D., Scheelings, R., Brooks, R. and Faff, R. (2009), Does risk aversion vary with decision-frame? An empirical test using recent game show data. Rev. Behav. Fin., 1: 44–61. doi: 10.1002/rbf.3
- Issue published online: 23 SEP 2009
- Article first published online: 21 AUG 2009
- Australian Research Council. Grant Number: LP0509992
- risk aversion;
- deal or no deal
An aspect of prospect theory posits that decision-makers, when making decisions in the face of risk, make their decisions with respect to a pre-existing reference point or ‘frame’ (the status-quo bias). We utilize data from the Australian version of the TV game show, Deal or No Deal, to explore whether risk aversion varies with a change in reference point in a context where stakes are real and high. We achieve this by exploiting a special and unique Australian feature of the Deal or No Deal lottery-choice setting, namely, the existence of the Chance or the SuperCase rounds (supplementary rounds). These rounds reverse the decision-frame that was obtained in earlier (normal) rounds. We fit and estimate a complete dynamic decision-making model to our dataset and find that the risk aversion estimate of contestants who participated in both the normal and the supplementary rounds indeed differs depending on the nature of the round, a result consistent with the operation of the existence of a framing effect. Copyright © 2009 John Wiley & Sons, Ltd.