Pay every subject or pay only some?

• Published in: Journal of risk and uncertainty Vol. 66; no. 2; pp. 161 - 188
• Main Authors: Anderson, Lisa R., Freeborn, Beth A., McAlvanah, Patrick, Turscak, Andrew
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.04.2023; Springer Nature B.V
• Subjects: Decision making; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Environmental Economics; Expected values; Experimental methods; Experiments; Microeconomics; Operations Research/Decision Theory; Policy making; Research methodology; Risk; Risk aversion; Risk factors; Risk preferences; Tolerance; Payment methods; Incentives; Risk elicitation; C90; Experimental methodology; D81
• ISSN: 0895-5646; 1573-0476
• DOI: 10.1007/s11166-022-09389-6

Measuring risk tolerance is of interest to policymakers given its importance in decision-making, and previous research has shown that the scale of payoffs influences elicited risk aversion levels. Sometimes budget-conscious researchers pay only some subjects for their decisions when eliciting risk preferences, or pay smaller stakes to everyone. We test the effect of paying some versus paying all subjects in the context of risk preferences, controlling for the difference in stakes induced by paying only some subjects. Paying some subjects yields lower levels of risk aversion than paying everyone, but more risk aversion than paying all subjects lower stakes. Paying some subjects also impacts the ordering of subjects by elicited risk aversion. We estimate a simple structural model of latent risk aversion that derives a correction factor to approximate paying high stakes to all subjects. Paying some subjects high stakes meaningfully impacts the elicited level of risk aversion, but better approximates the condition of paying all subjects high stakes compared to paying everyone lower stakes.