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Incentive Effects on Risk Attitude in Small Probability Prospects

  • Mathieu Lefebvre

    (CREPP - Center of Research in Public Economics and Population Economics - Université de Liège)

  • Ferdinand Vieider

    (GATE - Groupe d'analyse et de théorie économique - CNRS - UL2 - Université Lumière - Lyon 2 - Ecole Normale Supérieure Lettres et Sciences Humaines)

  • Marie Claire Villeval


    (GATE - Groupe d'analyse et de théorie économique - CNRS - UL2 - Université Lumière - Lyon 2 - Ecole Normale Supérieure Lettres et Sciences Humaines)

Most studies on the role of incentives on risk attitude report data obtained from within-subject experimental investigations. This may however raise an issue of sequentiality of effects as later choices may be influenced by earlier ones. This paper reports instead between-subject results on the effect of monetary stakes on risk attitudes for small probability prospects in a laboratory experiment. Under low stakes, we find the typical risk seeking behavior for small probabilities predicted by the prospect theory. But under high stakes, we provide some evidence that risk seeking behavior is dramatically reduced. This could suggest that utility is not consistently concave over the outcome space, but rather contains a convex section for very small amounts.

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Paper provided by HAL in its series Post-Print with number halshs-00435957.

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Date of creation: 2009
Date of revision:
Publication status: Published in Working Paper GATE 2009-26. 2009
Handle: RePEc:hal:journl:halshs-00435957
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