Risk Attitude and Market Behavior:Evidence from Experimental Asset Markets

In this paper we relate individual risk attitude as elicited by binary lotteriesand certainty equivalents to market behavior. By analyzing 26 independentmarkets with a total of 280 participants we show that binary lottery choicesand certainty equivalents are poorly correlated. Only lottery choices are relatedto market behavior: the higher the degree of risk aversion the lower theobserved market activity. Females are more risk averse than males accordingto binary lotteries, submit fewer offers and engage less often in trades.