I know that many, many people buy lottery tickets (or gamble in other ways) and also buy insurance; i.e., people are risk averse and gamblers at the same time. I am hoping that the authors will explain this in their book (or possibly with a guest posting here).
Here is the reply sent me this morning by Jay Hamilton:
As social scientists, we respect the power of prices, budget constraints, and framing effects to predict the choices that people make. In You Are What You Choose, we argue that more attention should be paid to the systematic variations in how people make decisions across domains of choice. We call people’s decision-making approaches their TRAITS, which stands for Time, Risk, Altruism, Information, meToo (looking to the decisions of others), and Stickiness.
Using 30,000 respondents to Knowledge Networks internet surveys, we develop measures of people’s TRAITS based on how their roles as consumers, neighbors, and friends. To develop an index of a person’s willingness to engage in risky actions, we draw on questions about smoking, gambling, risky sports played, number of moving violations in a car, and attitude questions such as ‘does a yellow light mean speed up or slow down.’
In your post, you raise the interesting question posed by Friedman and Savage about why some people buy both lottery tickets and insurance. Our model does not provide much additional insight beyond the traditional explanation of different shapes in utility curves. Instead, we explore whether we can isolate a general taste for risk that can be used to predict risky behavior across many dimensions of choice.
Our measure of Risk does allow us to predict who’s willing to take on gambles in many areas of life. The higher the Risk index that we measure, the more likely a person (controlling for age, gender, income, and education) is to :
- Say they follow an aggressive investment strategy
- Decide not to get the flu shot
- Be a political independent
We also find that people who are high on Risk and low on Information gathering end up not getting what they say they’re after in product markets. While they may say they want a safe car, for example, people with a taste for Risk and a general lack of interest in information appear to simply roll the dice when buying a car. They end up having a larger gap between the level of safety they say they want in a car and the level they actually end up with.
To see the types of questions we use to measure decision-making styles, and to see how you rate on the TRAITS, you can take our test at www.youchoosebook.comScott de Marchi and James T. Hamilton are professors at Duke University.