AREC Seminar Series - Charles Holt, University of Virginia
Upside Versus Downside Risk: Gender, Stakes, and Skewness
Abstract:
This paper investigates the effects of financial risk, both “upside” (low probability of a high payoff) and “downside” (low probability of a low payoff). Subjects in the experiment exhibit more aversion to downside risk and more attraction to risky prospects with a small chance of a high payoff. Females tend to be more averse to downside risk, and this gender difference is sharper in a high-stakes treatment. In contrast, there is no clear gender difference for upside risks with positive skewness. These differences are evaluated in terms of disentangling utility curvature and probability weighting components of risk aversion.