A survey of risk preference measures and their relation to field behavior

Many economic and financial decisions involve risk. A crucial question in this contextis how much risk people are willing to take. The importance of measuring the willingness of people to take risk is acknowledged by Dutch law, which requires financialinstitutions to take into account their customers’ risk preferences when offering products and services. Additionally, knowledge of participants’ risk preferences play animportant role in the recent pension agreement in the Netherlands, since it requirespension providers to invest in line with the age composition and risk attitudes ofparticipants.Here we discuss the concept of risk preferences and common ways to measurethem as proposed in the economics literature. We summarize traditional andbehavioral economics perspectives on decisions under risk. Next, we present severalincentivized experimental measures and non-incentivized survey measures of riskpreferences and describe how they correlate with field behavior, and we discussadvantages and disadvantages of the different methods. We also discuss what isknown, according to the economics literature, about the relationship between riskpreferences and age