The Effect of an Additional Alternative on Measured Risk Preferences in a Field Experiment
We experimentally test for the effect of an additional alternative on the measured risk preferences of farmers in rural Peru. In our experiment, subjects revealed their risk preferences with a series of choices between two gambles. We added a third gamble, which was always dominated by one of the two existing gambles. We found that subjects chose this gamble nearly one quarter of the time, in some cases causing them to appear more risk loving. We conclude that the number of available alternatives should be taken into account for predicting decisions under uncertainty.
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