This is the title of a recent paper by Schneider and Sutter (2026). While many people are familiar with the concept of risk aversion, the dispersion of outcomes (i.e. risk) is not the only thing that matters. The skewness of the distribution (conscience) and the risk in the tails of the distribution (conservatism) matter. For example, prudent individuals may be more likely to play the lottery because the downside risk is moderate, but the upside risk is very high (risk is right skewed).
The main questions in the literature are how prudent/parsimonious people are and whether prudent/parsimonious preferences matter for real-world behavior. The Schneider and Sutter paper aims to answer these questions. I summarize the paper below.
Methodology
The authors surveyed 658 children and adolescents aged 10 to 21. Their methodology depended on estimating respondents’ certainty counterparts. Certainty equivalence is the fixed amount of money that makes a subject indifferent between a lottery and a fixed amount of money. The specific approach the authors use is a dichotomous approach where participants choose between a fixed payout and a lottery in an iterative manner. especially,
In the first decision task the choice was between a fixed sum of 70 tellers and an equal probability of receiving zero or 140 tellers…If a subject chooses the fixed payment, the amount of the fixed payment will be
This will be decreased in the next iteration, whereas if they chose the lottery, the fixed payout will increase. From three such iterations, we estimate the indifference amount for a specific lottery, i.e., the certainty equivalent, taking the midpoint of the interval in which it should lie.
The authors then derive certainty equivalents between other points in the 0 to 140 Taylor option space based on the certainty equivalents for the original paper. The authors validate the approach by having respondents choose between left- and right-skewed lotteries – specifically (30, 70, 100, 100) versus (50, 50, 80, 120) where each of the 4 outcomes has a 25% probability. Note that the expected value of the two paired lotteries is the same.
Result
The authors found that individuals were risk averse (Arrow-Pratt coefficient of risk aversion,
Expressed in standard deviation of r = 0.46 (median: 0.35). Women were more risk-averse than men. The authors also found that 67% of respondents were prudent Too. “The mean (median) value of the simple discretion measure, expressed in standard deviations, is pCE = 0.80 (0.36), with 0 indicating discretion neutrality.” 57 percent of the respondents were also abstinent. Mean (median) Denuit-Eickhoudt measure TEMPERANCE tha = 0.30 (0.02).
Relevance to health care
Do these findings matter for health care? Turns out the answer is ‘yes’. The authors look at addictive smartphone use along with unhealthy behaviors (for example, high BMI, lack of physical activity, smoking, and alcohol) and link these behaviors to risk aversion, prudence, and abstinence measures.
Most importantly, discretion is closely related to health behavior, but also risk.
There is no hatred. This is especially true for addictive behaviors such as obsessions.
smartphone use, but also includes smoking and drinking, or living
overweight
Furthermore, risk preferences matter when using generalized and risk-adjusted cost-effectiveness analysis (GRACE). While GRACE relies on risk preferences on quality of life outcomes (rather than financial outcomes), these findings – and the dichotomization methodology – are highly relevant to that literature as well.
You can read the full paper HereNote that the online appendix contains a useful literature review examining risk aversion and field behavior, which is a helpful resource,
