Changing the probability versus changing the reward
AbstractThere are two means of changing the expected value of a risk: changing the probability of a reward or changing the reward. Theoretically, the former produces a greater change in expected utility for risk averse agents. This paper uses two formats of a risk preference elicitation mechanism under two decision frames to test this hypothesis. After controlling for decision error, probability weighting, and order effects, subjects, on average, are slightly risk averse and prefer an increase in the expected value of a risk due to increasing the probability over a compensated increase in the reward. There is substantial across-format inconsistency but very little within-format inconsistency at the individual level. Key Words: risk, uncertainty, experiments
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal Experimental Economics.
Volume (Year): 12 (2009)
Issue (Month): 4 (December)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=102888
Risk; Uncertainty; Experiments; C91; D81;
Other versions of this item:
- David M. Bruner, 2009. "Changing the Probability versus Changing the Reward," Working Papers 09-04, Department of Economics, Appalachian State University.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Steffen Andersen & Glenn Harrison & Morten Lau & E. RutstrÃ¶m, 2006.
"Elicitation using multiple price list formats,"
Springer, vol. 9(4), pages 383-405, December.
- Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
- Block, Michael K & Gerety, Vernon E, 1995. "Some Experimental Evidence on Differences between Student and Prisoner Reactions to Monetary Penalties and Risk," The Journal of Legal Studies, University of Chicago Press, vol. 24(1), pages 123-38, January.
- Smith, Vernon L & Walker, James M, 1993. "Monetary Rewards and Decision Cost in Experimental Economics," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 245-61, April.
- 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.
- Carbone, Enrica, 1997. "Investigation of stochastic preference theory using experimental data," Economics Letters, Elsevier, vol. 57(3), pages 305-311, December.
- Kahneman, Daniel & Tversky, Amos, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Econometric Society, vol. 47(2), pages 263-91, March.
- Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
- Grogger, Jeffrey, 1991. "Certainty vs. Severity of Punishment," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 297-309, April.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November.
- Wilcox, Nathaniel T, 1993. "Lottery Choice: Incentives, Complexity and Decision Time," Economic Journal, Royal Economic Society, vol. 103(421), pages 1397-1417, November.
- Loomes, G. & Moffatt, P.G. & Sugden, R., 1998.
"A Microeconometric Test of Alternative Stochastic Theories of Risky Choice,"
University of East Anglia Discussion Papers in Economics
9806, School of Economics, University of East Anglia, Norwich, UK..
- Loomes, Graham & Moffatt, Peter G & Sugden, Robert, 2002. " A Microeconometric Test of Alternative Stochastic Theories of Risky Choice," Journal of Risk and Uncertainty, Springer, vol. 24(2), pages 103-30, March.
- Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2003. "Risk averse behavior in generalized matching pennies games," Games and Economic Behavior, Elsevier, vol. 45(1), pages 97-113, October.
- Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-89, November.
- Meyers, Samuel L, Jr, 1983. "Estimating the Economic Model of Crime: Employment versus Punishment Effects," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 157-66, February.
- John Hey, .
"Does Repetition Improve Consistency?,"
99/28, Department of Economics, University of York.
- Gary S. Becker, 1974.
"Crime and Punishment: An Economic Approach,"
in: Essays in the Economics of Crime and Punishment, pages 1-54
National Bureau of Economic Research, Inc.
- Carbone, Enrica & Hey, John D, 1994. "Discriminating between Preference Functionals: A Preliminary Monte Carlo Study," Journal of Risk and Uncertainty, Springer, vol. 8(3), pages 223-42, May.
- Starmer, Chris & Sugden, Robert, 1991. "Does the Random-Lottery Incentive System Elicit True Preferences? An Experimental Investigation," American Economic Review, American Economic Association, vol. 81(4), pages 971-78, September.
- Charles A. Holt & Susan K. Laury, 2005. "Risk Aversion and Incentive Effects: New Data without Order Effects," American Economic Review, American Economic Association, vol. 95(3), pages 902-912, June.
- Gerard Debreu, 1957. "Stochastic Choice and Cardinal Utility," Cowles Foundation Discussion Papers 39, Cowles Foundation for Research in Economics, Yale University.
- Ballinger, T Parker & Wilcox, Nathaniel T, 1997. "Decisions, Error and Heterogeneity," Economic Journal, Royal Economic Society, vol. 107(443), pages 1090-1105, July.
- LeRoy, Stephen F & Singell, Larry D, Jr, 1987. "Knight on Risk and Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 394-406, April.
- Anderson, Lisa R & Stafford, Sarah L, 2003. "Punishment in a Regulatory Setting: Experimental Evidence from the VCM," Journal of Regulatory Economics, Springer, vol. 24(1), pages 91-110, July.
- Glenn W. Harrison & Eric Johnson & Melayne M. McInnes & E. Elisabet Rutstr�m, 2005. "Risk Aversion and Incentive Effects: Comment," American Economic Review, American Economic Association, vol. 95(3), pages 897-901, June.
- Camerer, Colin F & Ho, Teck-Hua, 1994. "Violations of the Betweenness Axiom and Nonlinearity in Probability," Journal of Risk and Uncertainty, Springer, vol. 8(2), pages 167-96, March.
- Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
- Steffen Anderson & Glenn Harrison & Morten Lau & Rutstrom Elisabet, 2007. "Valuation using multiple price list formats," Applied Economics, Taylor & Francis Journals, vol. 39(6), pages 675-682.
- Kimberly Rollins & Mimako Kobayashi, 2010. "Embedding a Field Experiment in Contingent Valuation to Measure Context-Dependent Risk Preferences: Does Prospect Theory Explain Individual Responses for Wildfire Risk?," Working Papers 10-003, University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics.
- Filippin, A. & Crosetto, P., 2014.
"A reconsideration of gender differences in risk attitudes,"
2014-01, Grenoble Applied Economics Laboratory (GAEL).
- Filippin, Antonio & Crosetto, Paolo, 2014. "A Reconsideration of Gender Differences in Risk Attitudes," IZA Discussion Papers 8184, Institute for the Study of Labor (IZA).
- Antonio FILIPPIN & Paolo CROSETTO, 2014. "A Reconsideration of Gender Differences in Risk Attitudes," Departmental Working Papers 2014-01, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
- Arnaud Reynaud & Stephane Couture, 2010.
"Stability of Risk Preference Measures: Results From a Field Experiment on French Farmers,"
LERNA Working Papers
10.10.316, LERNA, University of Toulouse.
- Arnaud Reynaud & Stéphane Couture, 2012. "Stability of risk preference measures: results from a field experiment on French farmers," Theory and Decision, Springer, vol. 73(2), pages 203-221, August.
- Couture, Stéphane & Reynaud, Arnaud, 2010. "Stability of Risk Preference Measures: Results from a Field Experiment on French Farmers," TSE Working Papers 10-151, Toulouse School of Economics (TSE).
- Stefan Zeisberger & Dennis Vrecko & Thomas Langer, 2012. "Measuring the time stability of Prospect Theory preferences," Theory and Decision, Springer, vol. 72(3), pages 359-386, March.
- Paolo Crosetto & Antonio Filippin, 2013.
"A Theoretical and Experimental Appraisal of Five Risk Elicitation Methods,"
Jena Economic Research Papers
2013-009, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- Paolo Crosetto & Antonio Filippin, 2013. "A Theoretical and Experimental Appraisal of Five Risk Elicitation Methods," SOEPpapers on Multidisciplinary Panel Data Research 547, DIW Berlin, The German Socio-Economic Panel (SOEP).
- Jonathan E. Alevy, 2011. "Ambiguity in Individual Choice and Market Environments: On the Importance of Comparative Ignorance," Working Papers 2011-04, University of Alaska Anchorage, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.