Certainty equivalent, risk attitudes and housing

ABSTRACT

The aim of this study was to explore risk attitudes towards gambles involving housing and money in gain and loss domains for different payoff values. The analysis relied on the main tenets of the prospect theory, and risk behaviours were inferred from certainty equivalents. The study included a lab-in-the-field experiment conducted on a sample of 250 residents of Warsaw (Poland). The respondents were risk-averse in the gain domain and risk-seeking in the loss domain. The estimates for money and housing differed significantly due to the higher utility of the latter.

KEYWORDS:

• Certainty equivalent
• housing market
• uncertainty
• risk attitude

JEL CLASSIFICATION:

• C93
• D81
• R21
• R31

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The publication is financed by a subsidy granted to the Cracow University of Economics and statutory research funding from the University of Warmia and Mazury in Olsztyn. The publication was written as a result of the author’s internship at the Cracow University of Economics, co-financed by the European Union under the European Social Fund (Operational Program Knowledge Education Development), carried out in the project Development Program at the University of Warmia and Mazury in Olsztyn (POWR.03.05.00-00-Z310/17). MT was supported by the Foundation for Polish Science (FNP) under the START program.