Relating the two Dimensions of Risk Attitudes: AnExperimental Analysis

In the framework of expected utility theory, risk attitudes are entirely capturedby the curvature of the utility function. In cumulative prospect theory (CPT) riskattitudes have an additional dimension: the weighting of probabilities. With thismodication, one question arises naturally: since both utility and probability weight-ing determine the attitude towards risk, what is the relation between them? Weran a controlled laboratory experiment to answer this question. Our ndings suggestthat the two dimensions capture dierent characteristics of individual risk attitude.Though individuals who are risk averse in one dimension are likely to be risk averse inthe other, the two dimensions show no signicant correlation. Moreover, a signicantproportion of subjects are risk averse in one dimension but risk seeking in the other. [Jianying Qiu, Eva-MArie Steiger]]