  The present paper introduces a theoretical framework through which the degree
of risk aversion with respect to uncertain prices can be measured through the
context of the indirect utility function (IUF) using a lab experiment. First,
the paper introduces the main elements of the duality theory (DT) in economics.
Next, it proposes the context of IUFs as a suitable framework for measuring
price risk aversion through varying prices as opposed to varying payoffs, which
has been common practice in the mainstream of experimental economics. Indeed,
the DT in modern microeconomics indicates that the direct utility function
(DUF) and the IUF are dual to each other, implicitly suggesting that the degree
of risk aversion (or risk seeking) that a given rational subject exhibits in
the context of the DUF must be equivalent to the degree of risk aversion (or
risk seeking) elicited through the context of the IUF. This paper tests the
accuracy of this theoretical prediction through a lab experiment using a series
of relevant statistical tests. This study uses the multiple price list (MPL)
method, which has been one of the most popular sets of elicitation procedures
in experimental economics to study risk preferences in the experimental
laboratory using non-interactive settings. The key findings of this study
indicate that price risk aversion (PrRA) is statistically significantly greater
than payoff risk aversion (PaRA). Additionally, it is shown that the risk
preferences elicited under the expected utility theory (EUT) are somewhat
subject to context. Other findings imply that the risk premium (RP), as a
measure of willingness to pay for insuring an uncertain situation, is
statistically significantly greater for stochastic prices compared to that for
stochastic payoffs. These results are robust across different MPL designs and
various statistical tests that are utilized.
