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The Binary Lottery Procedure does not induce risk neutrality in the Holt & Laury and Eckel & Grossman tasks

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  • Kirchkamp, Oliver
  • Oechssler, Joerg
  • Sofianos, Andis

Abstract

We test whether the binary lottery procedure makes participants behave as if they are risk neutral in the Holt and Laury (2002) and Eckel and Grossman (2002) tasks. Depending on the task, we find that less than half of the participants behave as if risk neutral. In fact, when we compare the distribution of choices, we find no significant difference to standard experiments that did not use the binary lottery procedure. Using a structural model we find modest evidence that the binary lottery procedure might move participants at least slightly towards risk neutrality.

Suggested Citation

  • Kirchkamp, Oliver & Oechssler, Joerg & Sofianos, Andis, 2021. "The Binary Lottery Procedure does not induce risk neutrality in the Holt & Laury and Eckel & Grossman tasks," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 348-369.
    • Handle: RePEc:eee:jeborg:v:185:y:2021:i:c:p:348-369
    DOI: 10.1016/j.jebo.2021.02.026
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    2. David Dillenberger & Uzi Segal, 2024. "Allocation Mechanisms with Mixture-Averse Preferences," Boston College Working Papers in Economics 1065, Boston College Department of Economics.
    3. Sofianos, Andis, 2022. "Self-reported & revealed trust: Experimental evidence," Journal of Economic Psychology, Elsevier, vol. 88(C).

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    More about this item

    Keywords

    Risk elicitation; Binary lottery procedure; Experimental economics;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access

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