WP 2015-12 Are Risks Over Multiple Attributes Traded Off? A Case Study of Aid

Published in 2019 in Journal of Economic Behavior and Organization, Volume 164.

AUTHORS: Lata Gangadharan, Glenn W. Harrison and Anke D. Leroux

ABSTRACT: Understanding decisions in situations involving multiple risks is vital in many contexts, including the provision of aid to developing countries. Aid typically involves trade-offs over multiple, desirable, but risky outcomes. We partner with an aid organisation and design a laboratory experiment to investigate multi-attribute risk preferences in the context of donations to risky aid projects. We find significant differences between attitudes over single risk outcomes in monetary and non-monetary domains. Our results show that individuals are generally multi-attribute risk averse and view aid outcomes as substitutes rather than complements. These preferences of donors contrast sharply with the views of experts and aid agencies, who tend to emphasise the complementary nature of aid outcomes. Finally, when individuals make risky donation decisions with their own money rather than someone else’s money, the degree of risk aversion decreases markedly.