Studies in the Area of Risk Management Reported from CREST Research Project (How Serious Is the Measurement-error Problem In Risk-aversion Tasks?): Risk Management

2022 FEB 22 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Researchers detail new data in Risk Management. According to news reporting from Palaiseau, France, by NewsRx journalists, research stated, “This paper analyzes within-session test/retest data from four different tasks used to elicit risk attitudes. Maximum-likelihood and non-parametric estimations on 16 datasets reveal that, irrespective of the task, measurement error accounts for approximately 50% of the variance of the observed variable capturing risk attitudes.”

The news correspondents obtained a quote from the research from CREST Research Project, “The consequences of this large noise element are evaluated by means of simulations. First, as predicted by theory, the coefficient on the risk measure in univariate OLS regressions is attenuated to approximately half of its true value, irrespective of the sample size. Second, the risk-attitude measure may spuriously appear to be insignificant, especially in small samples. Unlike the measurement error arising from within-individual variability, rounding has little influence on significance and biases. In the last part, we show that instrumental-variable estimation and the ORIV method, developed by Gillen et al. (2019), both of which require test/retest data, can eliminate the attenuation bias, but do not fully solve the insignificance problem in small samples.”

According to the news reporters, the research concluded: “Increasing the number of observations to N=500 removes most of the insignificance issues.”

This research has been peer-reviewed.

For more information on this research see: How Serious Is the Measurement-error Problem In Risk-aversion Tasks? Journal of Risk and Uncertainty, 2022. Journal of Risk and Uncertainty can be contacted at: Springer, Van Godewijckstraat 30, 3311 Gz Dordrecht, Netherlands. (Springer - www.springer.com; Journal of Risk and Uncertainty - http://www.springerlink.com/content/0895-5646/)

Our news journalists report that additional information may be obtained by contacting Fabien Perez, CREST Research Project, Ensae, Insee, Ave Le Chatelier, F-91120 Palaiseau, France. Additional authors for this research include Radu Vranceanu and Guillaume Hollard.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1007/s11166-021-09366-5. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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