Risk Perception and Risk Attitudes: Definitions, AssessmentProcedures, Effects on Behavior and Dynamic Changes

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This proposal develops an empirically-based approach to understanding differences between risk perceptions and risk attitudes. The distinction is important to understanding decision making because little is known about the measures used by individuals to assess the riskiness of options and the criteria used to select between objective measures (e.g., the variance of the alternatives) and subjective measures that may be more relevant for personal decision making. The proposed study will employ a series of experiments to first refine a general model of risk attitudes and then to test this model on two real-world situations, financial markets and medical diagnoses. Pilot data, discussed in the proposal, suggest that knowing more about individuals' risk perceptions may provide substantial support for understanding their general risk attitudes. The proposed studies extend earlier work of the investigator and should provide important insights for a large body of work that focuses on the effect of perceptions of riskiness on both decision processes (e.g., information search and acquisition) and behavior (e.g., individual choice).