Risk Preference Instability Across Institutions: A Dilemma

In this article we use laboratory experiments to ask a fundamental question: Do individuals behave as if their risk preferences are stable across institutions? In particular, we study the decisions of cash-motivated subjects in the repeated play of three different institutions: a value elicitation procedure for the sale of a risky asset, an English clock auction for the sale of a risky asset, and a first-price auction for the purchase of a riskless asset. We first do a simple categorical comparison of each subject's risk preferences across tasks by comparing the individual's decisions with an expected value maximizer. All subjects acted as if they were risk-loving in the English clock auctions and risk-averse in the first-price auctions. In the Becker, Degroot, and Marschack procedure, behavior was split between risk-loving and risk-averse bidding. For each institution we also estimate an individual's risk coefficient. We test the hypotheses that for the same individuals the estimated risk coefficient across institutions is the same. We find that these estimates are statistically different.