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Pay One or Pay All: Random Selection of One Choice for Payment

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  • Susan K. Laury

Abstract

It has become increasingly common in economics experiments to elicit a series of choices from participants, and then pay for only one, selected at random, after all have been made. This allows the researcher to observe a large number of individual decisions, and to increase payoffs for each decision since only one of them will be used for payment. It has not been demonstrated, however, whether subjects behave as if each of these choices involves the stated payoffs, or if subjects scale-down payoffs to account for the random selection that is made. This paper reports an experiment that tests this directly. In an environment where payoff scale effects have been demonstrated to matter, three treatments are conducted: pay for one of 10 choices under low payoffs, pay for all 10 choices under low payoffs, and pay for 1 of 10 choices under 10x the low payoff level. Increasing payoff scale has a significant effect on choices compared with the low payoff treatments where all 10 decisions are paid, or where one decision is paid. However, there is no significant difference in choices between paying for one or all 10 decisions at the low payoff level. This supports the validity of using the random-choice payment method.

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Bibliographic Info

Paper provided by Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University in its series Experimental Economics Center Working Paper Series with number 2006-24.

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Length: 18
Date of creation: May 2006
Date of revision:
Handle: RePEc:exc:wpaper:2006-24

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Cited by:
  1. Charness, Gary & Gneezy, Uri & Imas, Alex, 2013. "Experimental methods: Eliciting risk preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 87(C), pages 43-51.
  2. Sääksvuori, Lauri, 2013. "Voluntary formation of centralized sanctioning institutions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 44(C), pages 150-159.
  3. Nava Ashraf, 2009. "Spousal Control and Intra-household Decision Making: An Experimental Study in the Philippines," American Economic Review, American Economic Association, vol. 99(4), pages 1245-77, September.
  4. Guillen, Pablo & Ji, Daniel, 2011. "Trust, discrimination and acculturation," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(5), pages 594-608.
  5. Morone, Andrea & Ozdemir, Ozlem, 2012. "Black swan protection: an experimental investigation," MPRA Paper 38842, University Library of Munich, Germany.
  6. Nadja Kairies & Miriam Krieger, 2013. "How do Non-Monetary Performance Incentives for Physicians Affect the Quality of Medical Care? – A Laboratory Experiment," Ruhr Economic Papers 0414, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  7. Jeannette Brosig-Koch & Heike Hennig-Schmidt & Nadja Kairies & Daniel Wiesen, 2013. "How Effective are Pay-for-Performance Incentives for Physicians? – A Laboratory Experiment," Ruhr Economic Papers 0413, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  8. Larry Lawson & Catherine Lawson, 2011. "The Effect of Payment Methods on Risk Aversion," Atlantic Economic Journal, International Atlantic Economic Society, vol. 39(3), pages 249-260, September.

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