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Type	Journal Article
Scope	Discipline-based scholarship
Title	Rationality on the Rise: Why Relative Risk Aversion Increases with Stake Size
Organization Unit	Microeconomics and Experimental Economic Research (Ernst Fehr) Financial Economics (Helga Fehr-Duda)
Authors	Helga Fehr-Duda Adrian Bruhin Thomas Epper Renate Schubert
Item Subtype	Original Work
Refereed	Yes
Status	Published in final form
Language	English
Journal Title	Journal of Risk and Uncertainty
Publisher	Springer
Geographical Reach	international
Volume	40
Number	2
Page Range	147 - 180
Date	2010
Abstract Text	How does risk tolerance vary with stake size? This important question cannot be adequately answered if framing effects, nonlinear probability weighting, and heterogeneity of preference types are neglected. We show that the observed increase in relative risk aversion over gains cannot be captured by the curvature of the value function. Rather, it is predominantly driven by a change in probability weighting of a majority group of individuals who weight probabilities of high gains more conservatively. Contrary to gains, no coherent change in relative risk aversion is observed for losses. These results not only challenge expected utility theory, but also prospect theory.
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