Risk Aversion and Incentive Effects: New Data without Order Effects

Harrison et. al. (2005) correctly note that the estimate of an individual's degree of risk aversion may be biased if the subject first completes the same decision-problem under a different payoff scale. In response, a new experiment was conducted in which subjects completed a menu of lottery ch...

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Bibliographic Details
Published inThe American economic review Vol. 95; no. 3; pp. 902 - 904
Main Authors Holt, Charles A., Laury, Susan K.
Format Journal Article
LanguageEnglish
Published Nashville American Economic Association 01.06.2005
Subjects
Cash payments
Decision making
Earnings
Economic theory
Experimental economics
Experiments
Hypotheses
Lotteries
Microeconomics
Null hypothesis
P values
Risk aversion
Risk theory
Shorter Papers
Studies
United States > US
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Summary:Harrison et. al. (2005) correctly note that the estimate of an individual's degree of risk aversion may be biased if the subject first completes the same decision-problem under a different payoff scale. In response, a new experiment was conducted in which subjects completed a menu of lottery choices under a single payment condition, in order to eliminate order effects. Both the new data, and Harrison et. al., confirm that scaling up real payments results in a significant increase in risk aversion. The new data further demonstrate that scaling up hypothetical payments by the same amount does not cause a significant difference in risk aversion when possible order effects are eliminated.
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ISSN:0002-8282
1944-7981
DOI:10.1257/0002828054201459