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Do subjects remember the past?

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Author Info

  • John Hey
  • Jinkwon Lee

Abstract

In many experiments, experimenters use the random lottery incentive mechanism and ask many questions to each subject. That is, at the end of the experiment, just one of the questions is picked at random, and the subject paid on the basis of their answer to this one question. The idea is that subjects should separate the various questions and reply to each as if it were a separate question. This procedure is methodologically sound if the subjects' preferences obey Expected Utility (EU) theory (which implies a form of separation), but if they do not, this incentive mechanism is open to criticism. Indeed many referees use this argument against the research: they argue that subjects do not consider questions separately. If the questions are revealed to the subjects one by one, then the appropriate alternative hypothesis is that their behaviour evolves with the questions. Here this hypothesis is tested: that the questions already answered affect the answers to the subsequent questions. The analysis shows that this is generally not the case. This finding is of importance not only for the experimental community, but also for the wider community of economists - who typically, when analysing economic data, have to assume some kind of separation of present from past behaviour. The analysis indicates that such an assumption is defensible. An experimental defence of a procedure used widely in non-experimental empirical economics research is provided.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/0003684042000286124
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 1 ()
Pages: 9-18

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Handle: RePEc:taf:applec:v:37:y:2005:i:1:p:9-18

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References

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  1. 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.
  2. Karni, Edi & Safra, Zvi, 1987. ""Preference Reversal' and the Observability of Preferences by Experimental Methods," Econometrica, Econometric Society, vol. 55(3), pages 675-85, May.
  3. Robin Cubitt & Chris Starmer & Robert Sugden, 1998. "On the Validity of the Random Lottery Incentive System," Experimental Economics, Springer, vol. 1(2), pages 115-131, September.
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Cited by:
  1. Lucy Ackert & Ann Gillette & Jorge Martinez-Vazquez & Mark Rider, 2011. "Are benevolent dictators altruistic in groups? A within-subject design," Experimental Economics, Springer, vol. 14(3), pages 307-321, September.
  2. John Hey & Gianna Lotito, 2009. "Naive, resolute or sophisticated? A study of dynamic decision making," Journal of Risk and Uncertainty, Springer, vol. 38(1), pages 1-25, February.
  3. Guido Baltussen & G. Post & Martijn Assem & Peter Wakker, 2012. "Random incentive systems in a dynamic choice experiment," Experimental Economics, Springer, vol. 15(3), pages 418-443, September.
  4. Lucy F. Ackert & Ann B. Gillette & Jorge Martinez-Vazquez & Mark Rider, 2009. "Risk Tolerance, Self-Interest, and Social Preferences," Experimental Economics Center Working Paper Series 2009-04, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Feb 2011.
  5. Jinkwon Lee, 2008. "The effect of the background risk in a simple chance improving decision model," Journal of Risk and Uncertainty, Springer, vol. 36(1), pages 19-41, February.
  6. John Hey & Jinkwon Lee, 2005. "Do Subjects Separate (or Are They Sophisticated)?," Experimental Economics, Springer, vol. 8(3), pages 233-265, September.

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