Understanding the order effect in eliciting risk aversion

Economists have found the order effect in eliciting risk aversion but have failed to explain it. We analyzed a nationally representative Indonesian dataset with a large sample size (13,669 men and 15,590 women) by exploiting the randomized ordering of two sets of questions regarding risk preferences. Probit models, multinomial probit models, and interval regressions were applied. Both men and women became more risk tolerant after they responded to either set of questions. The results are consistent with a well-known phenomenon in psychology: familiarity produces the illusion of control and enhances confidence in oneself.