Empirical Comparison of Direct Techniques for Measuring Attitudes Toward Risk

The purpose of this study was to compare various direct techniques of measuring attitudes toward risk. The Equally Likely Certainty Equivalent with a Purely Hypothetical Risky prospect (ELCE-PH), The Equally Likely Certainty Equivalent with a Hypothetical but Realistic Risky prospect (ELCE-R) and Probability of Winning Demanded (PWD) models were used to elicit the risk attitude of a sample of farmers. These methods were then compared and evaluated. The criteria employed were (۱) sample respondent capability in answering questions, (۲) means and corresponding risk attitudes classification and (۳) distribution of risk attitudes. According to the first criterion, the results showed PWD technique is the best one. While there are no differences among the three direct techniques on the basis of the second criterion. Also, the findings indicate that respondent education and age, family education, level of hypothetical income and a greater explanation by other people during interview have an influence on respondent capability in answering questions. These characteristics should therefore be considered when choosing the appropriate technique.

Keywords:

Attitudes toward risk , Certainty equivalent , Probability of winning demanded