Advanced Search
MyIDEAS: Login to save this paper or follow this series

Monetary incentives in the loss domain and behavior toward risk: An experimental comparison of three reward schemes including real losses

Contents:

Author Info

  • Nathalie Etchart-Vincent

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, ENS Cachan - École Normale Supérieure de Cachan - École normale supérieure (ENS) - Cachan)

  • Olivier L'Haridon

    ()
    (Greg-HEC Paris and University Paris Sorbonne - Greg-HEC Paris and University Paris Sorbonne)

Abstract

In the loss domain, both practical and ethical considerations rule out the systematic use of an incentive-compatible procedure involving real losses. The experimental study presented here aims at investigating whether some easier-to-implement procedure could be adequately used. For that purpose, the subjects' degree of risk aversion is compared across three payment conditions: a real-losses condition based on a random-lottery (incentive-compatible) system, which serves as a benchmark, and two challengers, namely a "losses-from-an-initial-endowment" procedure and a hypothetical-losses condition. As a by-product, our experimental design also allows us to investigate the impact of monetary incentives in the gain domain. The main result is twofold: no significant difference arises between the three payment conditions in the loss domain, while real and hypothetical choices significantly differ in the gain domain. Our results suggest that the use of monetary incentives may be more crucial in the gain domain than in the loss domain.

Download Info

If 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.
File URL: http://hal.archives-ouvertes.fr/docs/00/74/20/27/PDF/Etchart_Vincent_L_Haridon_JRU_revision_October_2010.pdf
Download Restriction: no

Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00742027.

as in new window
Length:
Date of creation: 01 Feb 2011
Date of revision:
Publication status: Published, Journal of Risk and Uncertainty, 2011, 42, 1, 61-83
Handle: RePEc:hal:cesptp:hal-00742027

Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00742027
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/

Related research

Keywords: Decision making - Incentives - Risk - Utility measurement - Losses;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. David M. Grether & James C. Cox, 1996. "The preference reversal phenomenon: Response mode, markets and incentives (*)," Economic Theory, Springer, Springer, vol. 7(3), pages 381-405.
  2. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 35(1), pages 124-140, February.
  3. Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, Springer, vol. 19(1-3), pages 7-42, December.
  4. Keren, Gideon B. & Raaijmakers, Jeroen G. W., 1988. "On between-subjects versus within-subjects comparisons in testing utility theory," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 41(2), pages 233-247, April.
  5. Edward P. Lazear, 1996. "Performance Pay and Productivity," NBER Working Papers 5672, National Bureau of Economic Research, Inc.
  6. Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, INFORMS, vol. 36(6), pages 643-660, June.
  7. Arkes, Hal R. & Herren, Lisa Tandy & Isen, Alice M., 1988. "The role of potential loss in the influence of affect on risk-taking behavior," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 42(2), pages 181-193, October.
  8. Jinkwon Lee, 2008. "The effect of the background risk in a simple chance improving decision model," Journal of Risk and Uncertainty, Springer, Springer, vol. 36(1), pages 19-41, February.
  9. Jeremy Clark, 2002. "House Money Effects in Public Good Experiments," Experimental Economics, Springer, Springer, vol. 5(3), pages 223-231, December.
  10. Bostic, Raphael & Herrnstein, R. J. & Luce, R. Duncan, 1990. "The effect on the preference-reversal phenomenon of using choice indifferences," Journal of Economic Behavior & Organization, Elsevier, vol. 13(2), pages 193-212, March.
  11. Holt, Charles A, 1986. "Preference Reversals and the Independence Axiom," American Economic Review, American Economic Association, vol. 76(3), pages 508-15, June.
  12. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 263-91, March.
  13. Harrison, Glenn W, 1994. "Expected Utility Theory and the Experimentalists," Empirical Economics, Springer, Springer, vol. 19(2), pages 223-53.
  14. Battalio, Raymond C & Kagel, John H & Jiranyakul, Komain, 1990. " Testing between Alternative Models of Choice under Uncertainty: Some Initial Results," Journal of Risk and Uncertainty, Springer, Springer, vol. 3(1), pages 25-50, March.
  15. Mohammed Abdellaoui & Han Bleichrodt & Olivier L’Haridon, 2008. "A tractable method to measure utility and loss aversion under prospect theory," Journal of Risk and Uncertainty, Springer, Springer, vol. 36(3), pages 245-266, June.
  16. Antoni Bosch-Domènech & Joaquim Silvestre, 2006. "Averting risk in the face of large losses: Bernoulli vs. Tversky and Kahneman," Economics Working Papers 932, Department of Economics and Business, Universitat Pompeu Fabra.
  17. 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.
  18. Nathalie Etchart-Vincent, 2009. "Probability weighting and the 'level' and 'spacing' of outcomes: An experimental study over losses," Post-Print hal-00395876, HAL.
  19. Mohammed Abdellaoui & Olivier L’Haridon & Horst Zank, 2010. "Separating curvature and elevation: A parametric probability weighting function," Journal of Risk and Uncertainty, Springer, Springer, vol. 41(1), pages 39-65, August.
  20. Beattie, Jane & Loomes, Graham, 1997. "The Impact of Incentives upon Risky Choice Experiments," Journal of Risk and Uncertainty, Springer, Springer, vol. 14(2), pages 155-68, March.
  21. Charles Mason & Jason Shogren & Chad Settle & John List, 2005. "Investigating Risky Choices Over Losses Using Experimental Data," Journal of Risk and Uncertainty, Springer, Springer, vol. 31(2), pages 187-215, September.
  22. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  23. John A. List & Michael K. Price, 2013. "Using Field Experiments in Environmental and Resource Economics," NBER Working Papers 19289, National Bureau of Economic Research, Inc.
  24. Robin Cubitt & Chris Starmer & Robert Sugden, 1998. "On the Validity of the Random Lottery Incentive System," Experimental Economics, Springer, Springer, vol. 1(2), pages 115-131, September.
  25. Adrian Bruhin & Helga Fehr-Duda & Thomas Epper, 2007. "Risk and Rationality: Uncovering Heterogeneity in Probability Distortion," SOI - Working Papers 0705, Socioeconomic Institute - University of Zurich, revised Jul 2007.
  26. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, Springer, vol. 5(4), pages 297-323, October.
  27. Paul J. H. Schoemaker, 1990. "Are Risk-Attitudes Related Across Domains and Response Modes?," Management Science, INFORMS, INFORMS, vol. 36(12), pages 1451-1463, December.
  28. Robert Gibbons, 1996. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc.
  29. Keasey, Kevin & Moon, Philip, 1996. "Gambling with the house money in capital expenditure decisions: An experimental analysis," Economics Letters, Elsevier, vol. 50(1), pages 105-110, January.
  30. Chateauneuf, Alain & Cohen, Michele, 1994. "Risk Seeking with Diminishing Marginal Utility in a Non-expected Utility Model," Journal of Risk and Uncertainty, Springer, Springer, vol. 9(1), pages 77-91, July.
  31. Nicholas Bardsley, 2000. "Control Without Deception: Individual Behaviour in Free-Riding Experiments Revisited," Experimental Economics, Springer, Springer, vol. 3(3), pages 215-240, December.
  32. Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, vol. 66(2), pages 274-79, May.
  33. Daniel Read, 2005. "Monetary incentives, what are they good for?," Journal of Economic Methodology, Taylor & Francis Journals, vol. 12(2), pages 265-276.
  34. 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.
  35. Nathalie Etchart-Vincent, 2004. "Is Probability Weighting Sensitive to the Magnitude of Consequences? An Experimental Investigation on Losses," Journal of Risk and Uncertainty, Springer, Springer, vol. 28(3), pages 217-235, 05.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Vieider, Ferdinand M. & Truong, Nghi & Martinsson, Peter & Pham Khanh Nam & Martinsson, Peter, 2013. "Risk preferences and development revisited: A field experiment in Vietnam," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2013-403, Social Science Research Center Berlin (WZB).
  2. Vieider, Ferdinand M., 2012. "Moderate stake variations for risk and uncertainty, gains and losses: Methodological implications for comparative studies," Economics Letters, Elsevier, vol. 117(3), pages 718-721.
  3. Lionel Page & David Savage & Benno Torgler, 2012. "Variation in risk seeking behavior in a natural experiment on large losses induced by a natural disaster," CREMA Working Paper Series 2012-07, Center for Research in Economics, Management and the Arts (CREMA).
  4. Narat Charupat & Richard Deaves & Travis Derouin & Marcelo Klotzle & Peter Miu, 2013. "Emotional balance and probability weighting," Theory and Decision, Springer, Springer, vol. 75(1), pages 17-41, July.
  5. Nathalie Etchart-Vincent, 2009. "Probability weighting and the 'level' and 'spacing' of outcomes: An experimental study over losses," Post-Print hal-00395876, HAL.
  6. Mohammed Abdellaoui & Olivier L’Haridon & Horst Zank, 2010. "Separating curvature and elevation: A parametric probability weighting function," Journal of Risk and Uncertainty, Springer, Springer, vol. 41(1), pages 39-65, August.
  7. Mark Schweizer, 2013. "The civil standard of proof – what is it, actually?," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2013_12, Max Planck Institute for Research on Collective Goods.
  8. Jing, Lin & Cheo, Roland, 2013. "House money effects, risk preferences and the public goods game," Economics Letters, Elsevier, vol. 120(2), pages 310-313.
  9. Vieider, Ferdinand M. & Lefebvre, Mathieu & Bouchouicha, Ranoua & Chmura, Thorsten & Hakimov, Rustamdjan & Krawczyk, Michal & Martinsson, Peter, 2013. "Common components of risk and uncertainty attitudes across contexts and domains: Evidence from 30 countries," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2013-402, Social Science Research Center Berlin (WZB).
  10. Vieider, Ferdinand M. & Chmura, Thorsten & Martinsson, Peter, 2012. "Risk attitudes, development, and growth: Macroeconomic evidence from experiments in 30 countries," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2012-401, Social Science Research Center Berlin (WZB).
  11. Mohammed Abdellaoui & Han Bleichrodt & Olivier L’Haridon, 2008. "A tractable method to measure utility and loss aversion under prospect theory," Journal of Risk and Uncertainty, Springer, Springer, vol. 36(3), pages 245-266, June.
  12. Lionel Page & David A. Savage & Benno Torgler, 2013. "Variation in risk seeking behavior following large losses: A natural experiment," QuBE Working Papers, QUT Business School 007, QUT Business School.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:hal-00742027. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).

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.