Attitudes Toward Risk: Experimental Measurement in Rural India

Abstract

Attitudes toward risk were measured in 240 households using two methods: an interview method eliciting certainty equivalents and an experimental gambling approach with real payoffs which, at their maximum, exceeded monthly incomes of unskilled laborers. The interview method is subject to interviewer bias and its results were totally inconsistent with the experimental measures of risk aversion. Experimental measures indicate that, at high payoff levels, virtually all individuals are moderately risk‐averse with little variation according to personal characteristics. Wealth tends to reduce risk aversion slightly, but its effect is not statistically significant.