On the Change of Risk Aversion in Wealth : A Field Experiment in a Closed Economic System

How does risk aversion change in wealth? To answer this question, we implemented a field experiment in the form of a free-to-play mobile game. Players made lottery choices at various points in the game and at different levels of in-game wealth. Since the game was designed as a closed economic system, that is, wealth could not be transferred into or out of the game, only in-game wealth was relevant for players’ choices. Analyzing the choices of over 2,000 players, we find robust evidence for decreasing absolute risk aversion (DARA) and decreasing relative risk aversion (DRRA). We also find evidence of an "always safe" heuristic in a subgroup of decisions and observe a tendency of players to act according to the hot hand fallacy. Our research design allows us to exclude inertia and lets us analyze lottery stakes of significant size relative to in-game wealth. Our results render implications for theoretical research, empirical studies, and for the optimal design of financial products