Abstract

Experimental and real world evidence show that many aspects of risk-taking behavior can be explained by assuming that people weight outcomes by a subjective rather than objective probability. In this paper we explore how these probability weights change with age by looking at risk-taking behavior in participants from age 5 to 64. Our participants make choices between certain payoffs and simple gambles for which the probability of winning and losing varies. We find strong evidence for probability weighting in children. Children underweight low-probability events and overweight high-probability ones. Probability weighting tends to diminish with age, and on average adults use the objective probability when evaluating gambles over gains.

Citations