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Money does Not Induce Risk Neutral Behavior, but Binary Lotteries Do even Worse

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Author Info
Selten, Reinhard, Abdolkarim Sadrieh, and Klaus Abbink

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Abstract

If payoffs are tickets for binary lotteries, which involve only two money prizes, then rationality requires expected value maximization in tickets. This payoff scheme was increasingly used to induce risk neutrality in experiments. The experiment presented here involved lottery choice and valuation tasks. One subject group was paid in binary lottery tickets, another directly in money. significantly greater deviations from risk neutral behavior are observed with binary lottery payoffs. This discrepancy increases when sujects have easy access to the alternatives' expected values and mean absolute deviations. Behavioral regularities are observed at least as often as with direct money payoffs.

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Publisher Info
Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 343.

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Date of creation: Dec 1995
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Handle: RePEc:bon:bonsfb:343

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 9221
Web page: http://www.bgse.uni-bonn.de/index.php?id=517

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Related research
Keywords: Binary lottery payoffs choices under risk risk preferences design of experiments experimental economics

Find related papers by JEL classification:
C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

Cited by:
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  10. Wolfgang Leininger, 2000. "Auction Theory from an All-Pay View: Buying Binary Lotteries," Discussion Papers in Economics 00_06, University of Dortmund, Department of Economics. [Downloadable!]
  11. Vital Anderhub & Simon Gächter & Manfred Königstein, 2002. "Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment," Experimental Economics, Springer, vol. 5(1), pages 5-27, June. [Downloadable!] (restricted)
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  14. Antonio Cabrales & Walter Garcia Fontes & Massimo Motta, 1997. "Risk Dominance Selects the Leader. An Experimental Analysis," Economics Working Papers 222, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  15. Wolfgang Leininger, 2000. "Auction Theory from an All-Pay View: Buying Binary Lotteries," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  18. Camerer, Colin F. & Hogarth, Robin M., 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Working Papers 1059, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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