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Experimental evidence on the effect of incentives and domain in risk aversion and discounting tasks

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  • Emmanouil Mentzakis

    (University of Southampton)

  • Jana Sadeh

    (University of Southampton)

Abstract

Environmental policy evaluation is often criticised for employing discount rates that have little grounding in research. Yet, experimental research aimed at eliciting realistic rates will inevitably require strong assumptions of external validity, while also placing large cognitive demands on subjects by processing tasks of increased unfamiliarity. We use a controlled lab experiment to test the impact of incentives on risk aversion and discounting tasks for monetary and environmental goods. We find that, on average, incentives have little effect on risk aversion or discounting tasks in either domain. Exploring heterogeneity by treatment and socio-demographics some significant patterns emerge. Further, contrary to past work, we find evidence of domain (monetary vs. environmental good) effects in both risk and discounting.

Suggested Citation

  • Emmanouil Mentzakis & Jana Sadeh, 2021. "Experimental evidence on the effect of incentives and domain in risk aversion and discounting tasks," Journal of Risk and Uncertainty, Springer, vol. 62(3), pages 203-224, June.
    • Handle: RePEc:kap:jrisku:v:62:y:2021:i:3:d:10.1007_s11166-021-09354-9
    DOI: 10.1007/s11166-021-09354-9
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    3. Begoña Cabeza;, 2023. "Social preferences, support for redistribution, and attitudes towards vulnerable groups," Working Papers 2308, Herman Deleeck Centre for Social Policy, University of Antwerp.

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    More about this item

    Keywords

    Time preferences; Risk aversion; Hypothetical bias; Experimental incentives; Domain effects;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • 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
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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