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UNU-WIDER WP/2012/38 Risk experiments in gains and losses: A case study for Benin

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A teenager wears torn rubber boots in a muddy local market in Bac Ha, Viet Nam. As of 2005 figures, half the world population—more than 3 billion people–is estimated to live on less than USD 2.50 a day. Bac Ha, Viet Nam. UN Photo/Kibae Park.

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WP/038 Risk experiments in gains and losses: A case study for Benin

The aim of this paper is to expand our knowledge on risk aversion among the poor by conducting experiments that do not only test risk aversion in small and large stakes but also in risky gains and risky losses. To our knowledge, this is the first attempt to conduct experiments in poor communities strictly focused on the loss domain. The experiments were conducted with 120 poor rural households in Benin. In contrast to results in industrialized countries, we find that playing lotteries constrained to the loss domain dramatically increases risk aversion. We also find a strong negative relationship between the level of risk aversion (both in gains and losses) and the level of religious faith. Our interpretation of this result is that villagers with strong beliefs tend to rely more on God’s goodwill at the expense of a proper risk assessment, resulting in larger risk-taking.
Publisher:
UNU-WIDER
Series:
UNU-WIDER Working Paper
Volume:
2012/38
Title:
WP/038 Risk experiments in gains and losses: A case study for Benin
Authors:
Jonathan Gheyssens and Isabel Günther
Publication date:
April 2012
ISBN 13 Web:
978-92-9230-501-7
Copyright holder:
© UNU-WIDER
Copyright year:
2012
Keywords:
risk aversion; loss aversion; religion
JEL:
D81, O1
Project:
New Approaches to Measuring Poverty and Vulnerability
Sponsor:
UNU-WIDER gratefully acknowledges the financial contributions to the research programme by the governments of Denmark (Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs), Sweden (Swedish International Development Cooperation Agency—Sida) and the United Kingdom (Department for International Development).
Format:
online

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