What Can Multiple Price Lists Really Tell Us about Risk Preferences?

Multiple price lists have emerged as a simple and popular method for eliciting risk preferences. Despite their popularity, a key downside of multiple price lists has not been widely recognized - namely that the approach is unlikely to generate sufficient information to accurately identify different dimensions of risk preferences. The most popular theories of decision making under risk posit that preference for risk are driven by a combination of two factors: the curvature of the utility function and the extent to which probabilities are weighted non-linearly. In this paper, we show that the widely used multiple price list introduced by Holt and Laury (2002) is likely more accurate at eliciting the latter, and we introduce a different multiple price list that is likely more accurate at eliciting the former. We show that by combining information from different multiple price lists, greater predictive performance can be achieved.