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House money effects, risk preferences and the public goods game

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  • Jing, Lin
  • Cheo, Roland
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    Abstract

    This paper investigates whether risk preferences inform the decision of how much to put into the public account in the public goods game under the three different frames (the two house money effect frames: the standard and covered-loss frames, as well as the real-loss frame). The main contribution of this paper finds that the covered loss and real loss treatments are statistically equivalent. This assures researchers that just introducing the notion of loss into an experimental treatment without the need for participants to realize a real loss is still a valid experimental instrument. We also find that the house money effect is a better explanation for the difference in contributions between gain and loss framing than loss aversion.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 120 (2013)
    Issue (Month): 2 ()
    Pages: 310-313

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    Handle: RePEc:eee:ecolet:v:120:y:2013:i:2:p:310-313

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    Web page: http://www.elsevier.com/locate/ecolet

    Related research

    Keywords: Risk profile; Public goods experiment; House money effect; Real losses; Covered losses; Prospect theory;

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    References

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    1. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    2. Glenn Harrison, 2007. "House money effects in public good experiments: Comment," Experimental Economics, Springer, vol. 10(4), pages 429-437, December.
    3. Nathalie Etchart-Vincent & Olivier L'Haridon, 2011. "Monetary incentives in the loss domain and behavior toward risk: An experimental comparison of three reward schemes including real losses," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00742027, HAL.
    4. Sasaki, Shunichiro & Xie, Shiyu & Ohtake, Fumio & Qin, Jie & Tsutsui, Yoshiro, 2008. "Experiments on risk attitude: The case of Chinese students," China Economic Review, Elsevier, vol. 19(2), pages 245-259, June.
    5. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    6. Daniel Houser & Daniel Schunk & Joachim Winter, 2009. "Distinguishing trust from risk: an anatomy of the investment game," IEW - Working Papers 450, Institute for Empirical Research in Economics - University of Zurich.
    7. Eckel, Catherine C. & Wilson, Rick K., 2004. "Is trust a risky decision?," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 447-465, December.
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