Reference no: EM132585143

Many of the behavioral studies we have discussed this semester have examined people's attitudes towards risk aversion based on how they respond to choices between lotteries or other similar scenarios. In this question, you will be examining those approaches to measuring risk aversion from the point of view of psychology. Read the article, "Risk Preference: A View from Psychology" by Mata et al. (2018) in the Journal of Economic Perspectives, and answer the following questions.

A. According to the authors, how does the definition of risk preference used in economics differ from the one used in psychology?

B. Which definition of risk preference (the psychology definition, or the economics definition) do you think more accurately captures the general meaning people associate with that term? Which do you feel is more useful? Why?

C. The authors talk about two different approaches measuring risk preference: A behavioral (or revealed preferences) approach, and a stated or (self-reported) approach. Briefly describe each of these two approaches.

D. The authors discuss three different characteristics of measurements of psychological traits: temporal stability, convergent validity, and predictive validity. Briefly summarize each of these characteristics

E. How do the two methods of measuring risk preference compare when viewed through the lens of temporal stability, convergent validity, and predictive validity?

F. Based on your responses to part E, how would you compare the usefulness of the two measures of risk aversion (behavioral, and self-reported)? Is there another metric that you feel should be considered when evaluating these two methods of measuring, or another reason not discussed in this paper of why one should be preferred over another?