OBSERVING DIFFERENT ORDERS OF RISK-AVERSION

A decision maker's attitude towards risk is said to be of order i, i = 1, 2, if for every given risk (e) over bar with expected value zero, the risk premium the decision maker is willing to pay to avoid the ris k t (e) over bar goes with t to zero at the same order as t(i). This a rticle presents an experiment testing the order of decision makers' at titudes toward risk. Its major result is that both attitudes exist, ea ch in significant proportions. Moreover, two classes of first-order be havior are defined. The rank-dependent model (Quiggin, 1982) belongs t o one, the disappointment aversion model (Gul, 1991) to the other. We show that only the first of these two classes appears among our subjec ts.