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Individual differences in subjective risk thresholds

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Subjective risk perceptions are often encoded as responses to 0-1 questions in survey or other qualitative risk scales. However, reference points for assessing an activity as risky are confounded by various characteristics of the respondents. This paper uses a sample of workers for whom quantitative risk assessments as well as dichotomous risk perception reponses are avaible. It is shown that, given a quantitative risk measure, the thresholds for assessing an activity as risky vary systematically, particularly by education. The differences in such thresholds across worker groups are estimated. The resulting implications of using qualitative risk variables for assessing wage-risk tradeoffs are estimated, yielding results which are also relevant for many other areas involving similar qualitative variables

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en

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application/pdf

Resource resource URL

http://flora.insead.edu/fichiersti_wp/inseadwp1996/96-13.pdf

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Copyright INSEAD. All rights reserved