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Université de Lausanne
Faculté des HEC
Département d'économétrie et d'économie politique

Cahier de recherches économiques du DEEP No. 16.20

Adrian Bruhin and Luìs Santos-Pinto and David Staubli

How Do Beliefs about Skill A ffect Risky Decisions?

October 3, 2016


Beliefs about relative skill matter for risky decisions such as career choices, market entry, and  financial investments. Yet in most laboratory experiments risk is exogenously given and beliefs about relative skill play no role. We use a laboratory experiment free of strategy confounds to isolate the impact of beliefs about relative skill on risky choices. We find that low (high) skill individuals are more (less) willing to take risks on gambles with probabilities depending on relative skill than on gambles with exogenously given probabilities. Additionally, the correlation between stated and revealed beliefs ― beliefs estimated from choices ― is only moderate, suggesting that relying exclusively on stated beliefs may be misleading.

JEL Classification: C91; D81

Keywords: Individual risk taking behavior; Self-con fidence; Laboratory experiment

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