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Random incentive systems in a dynamic choice experiment

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Listed:
  • Guido Baltussen
  • G. Post
  • Martijn Assem

    ()

  • Peter Wakker

Abstract

Experiments frequently use a random incentive system (RIS), where only tasks that are randomly selected at the end of the experiment are for real. The most common type pays every subject one out of her multiple tasks (within-subjects randomization). Recently, another type has become popular, where a subset of subjects is randomly selected, and only these subjects receive one real payment (between-subjects randomization). In earlier tests with simple, static tasks, RISs performed well. The present study investigates RISs in a more complex, dynamic choice experiment. We find that between-subjects randomization reduces risk aversion. While within-subjects randomization delivers unbiased measurements of risk aversion, it does not eliminate carry-over effects from previous tasks. Both types generate an increase in subjects’ error rates. These results suggest that caution is warranted when applying RISs to more complex and dynamic tasks. Copyright The Author(s) 2012

Suggested Citation

  • Guido Baltussen & G. Post & Martijn Assem & Peter Wakker, 2012. "Random incentive systems in a dynamic choice experiment," Experimental Economics, Springer;Economic Science Association, vol. 15(3), pages 418-443, September.
  • Handle: RePEc:kap:expeco:v:15:y:2012:i:3:p:418-443
    DOI: 10.1007/s10683-011-9306-4
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    More about this item

    Keywords

    Random incentive system; Incentives; Experimental measurement; Risky choice; Risk aversion; Dynamic choice; Tremble; Within-subjects design; Between-subjects design; C91; D81;
    All these keywords.

    JEL classification:

    • 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

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