Measuring risk aversion among the urban poor in Kolkata, India

We examine risk preferences in an urban setting in a low-income developing country with nonstudent subjects by adapting the experimental approach of Holt and Laury (HL; 2002). We conducted 22 group experiments with 404 participants and used in-kind payoffs. The average respondent was ‘riskaverse’ (the midpoint of Constant Relative Risk Aversion (CRRA) intervals among participants was 0.53, roughly in line with most similar studies in poor countries).

Like most other studies, we find weak correlations between risk aversion and most socio-economic characteristics. Importantly, a sizeable minority had difficulty understanding the experiment, and
participants were influenced by the context in which the experiments occurred (these problems are not unique to our study). Our article adds to a growing literature that suggests that risk aversion elicitation approaches are sensitive to context and cognitive abilities of participants.

First author and contact person: Joe Cook