WP 2015-12 Preferences over Risky Aid
ABSTRACT: Understanding decisions in situations involving multiple risks is important 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. We find that individuals are generally multi-attribute risk averse and that aid outcomes are seen as substitutes rather than complements. These preferences of private donors contrast sharply with the views of experts and aid agencies, who tend to emphasise the complementary nature of aid outcomes. Finally, the degree of risk aversion decreases markedly when individuals make risky donation decisions with their own money rather than someone else’s money.