Risk aversion in laboratory asset markets

Abstract

This paper reports findings from a series of laboratory asset markets. Although stakes in these markets are modest, asset prices display a substantial equity premium (risky assets are priced substantially below their expected payoffs) – indicating substantial risk aversion. Moreover, the differences between expected asset payoffs and asset prices are in the direction predicted by standard asset-pricing theory: assets with higher beta have higher returns. This work suggests ways to separate the effects of risk aversion from competing explanations in other experimental environments.