Measuring Risk Attitudes: One of my favorite ways to introduce students to the concept of a risk attitude and how we might measure it is to run a simplified version of a mechanism first introduced in a paper by Charles A. Holt and Susan K. Laury in the American Economic Review in December 2002 (Vol. 92, No. 5, pp. 16441655). The choice task involves asking students to pick between a gamble and a sure-thing payment in a series of scenarios. The gambles involve winning either $20 or $0 while the sure thing is a $10 payoff. The probabilities in the gamble range from a very high chance of the big prize (say a 95 percent chance of $20 and only a 5 percent chance of $0) to a very low chance of the big prize. An example of a portion of a handout is shown below. Students are asked to make a decision for each line and where they switch from Column A to Column B tells us something about their risk attitudes. In a research context, these choices are incentivized (i.e., real money is paid), and the results can be used to estimate risk aversion coefficients. In the classroom, it is sufficient to ask students to make hypothetical decisions and to take a show of hands to illustrate that different individuals have different attitudes about risk.

Choice	Gamble	Sure Thing
8	60 percent chance of $20 and 40 percent chance of $0	$10 for sure
9	55 percent chance of $20 and 45 percent chance of $0	$10 for sure
10	50 percent chance of $20 and 50 percent chance of $0	$10 for sure
11	45 percent chance of $20 and 55 percent chance of $0	$10 for sure
12	40 percent chance of $20 and 60 percent chance of $0	$10 for sure