Money Does Not Induce Risk Neutral Behavior, but Binary Lotteries Do even Worse
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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Volume (Year): 46 (1999)
Issue (Month): 3 (June)
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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.:
- Cox, James C & Oaxaca, Ronald L, 1995. "Inducing Risk-Neutral Preferences: Further Analysis of the Data," Journal of Risk and Uncertainty, Springer, vol. 11(1), pages 65-79, July.
- Cooper, R. & DeJong, D.V. & Forsythe, R. & Ross, T.W., 1991. "Forward Induction in the Battle of Sexes Games," Working Papers 91-19, University of Iowa, Department of Economics.
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- Walker, James M & Smith, Vernon L & Cox, James C, 1990. "Inducing Risk-Neutral Preferences: An Examination in a Controlled Market Environment," Journal of Risk and Uncertainty, Springer, vol. 3(1), pages 5-24, March.
- Joyce E. Berg & Lane A. Daley & John W. Dickhaut & John R. O'Brien, 1986. "Controlling Preferences for Lotteries on Units of Experimental Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 281-306.
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