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Risk Attitudes of Children and Adults: Choices Over Small and Large Probability Gains and Losses

Published online by Cambridge University Press:  14 March 2025

William T. Harbaugh ,
Kate Krause  and
Lise Vesterlund
William T. Harbaugh*
Affiliation:
University of Oregon and N.B.E.R. Eugene, Oregon 97403-1285, USA
Kate Krause*
Affiliation:
University of New Mexico, Albuquerque, New Mexico 87131-1101, USA
Lise Vesterlund*
Affiliation:
University of Pittsburgh, Pittsburgh, PA 15260, USA
*
email: [email protected]
email: [email protected]
email: [email protected]
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Abstract

In this paper we examine how risk attitudes change with age. We present participants from age 5 to 64 with choices between simple gambles and the expected value of the gambles. The gambles are over both gains and losses, and vary in the probability of the non-zero payoff. Surprisingly, we find that many participants are risk seeking when faced with high-probability prospects over gains and risk averse when faced with small-probability prospects. Over losses we find the exact opposite. Children's choices are consistent with the underweighting of low-probability events and the overweighting of high-probability ones. This tendency diminishes with age, and on average adults appear to use the objective probability when evaluating risky prospects.

Keywords

probability weightingsubjective expected utilityprospect theorychildrenrisk

JEL classification

D80: General
Type
Research Article
Information
Experimental Economics , Volume 5 , Issue 1 , June 2002 , pp. 53 - 84
Copyright
Copyright © 2002 Economic Science Association

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