Random incentive systems in a dynamic choice experiment

Experimental Economics

Volumn 15, Issue 3, 2012, Pages 418-443

  Baltussen, Guido ^a   Post, G Thierry ^b   van den Assem, Martijn J ^a   Wakker, Peter P ^a  

^a ERASMUS UNIVERSITY ROTTERDAM   (Netherlands)

^b KOÇ UNIVERSITY   (Turkey)

Author keywords

Between subjects design; Dynamic choice; Experimental measurement; Incentives; Random incentive system; Risk aversion; Risky choice; Tremble; Within subjects design

Indexed keywords

EID: 84864409372     PISSN: 13864157     EISSN: None     Source Type: Journal    
DOI: 10.1007/s10683-011-9306-4     Document Type: Article

References (76)

1. Aharoni, G., & Sarig, O. H. (2008). Hot hands in basketball and equilibrium (Working paper). Available at http://ssrn. com/abstract=883324.
2. Allais, M. (1953). Le comportement de l'homme rationnel devant le risque: critique des postulats et axiomes de l'École Américaine. Econometrica, 21(4), 503-546.
3. Ariely, D., Loewenstein, G., & Prelec, D. (2003). Coherent arbitrariness: stable demand curves without stable preferences. The Quarterly Journal of Economics, 118(1), 73-105.
4. Ariely, D., Loewenstein, G., & Prelec, D. (2006). Tom Sawyer and the construction of value. Journal of Economic Behavior & Organization, 60(1), 1-10.
5. Armantier, O. (2006). Do wealth differences affect fairness considerations? International Economic Review, 47(2), 391-429.
6. Beattie, J., & Loomes, G. (1997). The impact of incentives upon risky choice experiments. Journal of Risk and Uncertainty, 14(2), 155-168.
7. Bettinger, E., & Slonim, R. (2007). Patience among children. Journal of Public Economics, 91(1-2), 343-363.
8. Blavatskyy, P., & Pogrebna, G. (2008). Risk aversion when gains are likely and unlikely: evidence from a natural experiment with large stakes. Theory and Decision, 64(2-3), 395-420.
9. Blavatskyy, P., & Pogrebna, G. (2010a). Models of stochastic choice and decision theories: why both are important for analyzing decisions. Journal of Applied Econometrics, 25(6), 963-986.
10. Blavatskyy, P., & Pogrebna, G. (2010b). Endowment effects? 'Even' with half a million on the table! Theory and Decision, 68(1-2), 173-192.
11. Bolle, F. (1990). High reward experiments without high expenditure for the experimenter. Journal of Economic Psychology, 11(2), 157-167.
12. Brooks, R. D., Faff, R. W., Mulino, D., & Scheelings, R. (2009a). Deal or no deal, that is the question: the impact of increasing stakes and framing effects on decision-making under risk. International Review of Finance, 9(1-2), 27-50.
13. Brooks, R. D., Faff, R. W., Mulino, D., & Scheelings, R. (2009b). Does risk aversion vary with decision-frame? An empirical test using recent game show data. Review of Behavioral Finance, 1(1-2), 44-61.
14. Camerer, C. F. (1989). An experimental test of several generalized utility theories. Journal of Risk and Uncertainty, 2(1), 61-104.
15. Camerer, C. F., & Ho, T.-H. (1994). Violations of the betweenness axiom and nonlinearity in probability. Journal of Risk and Uncertainty, 8(2), 167-196.
16. Camerer, C. F., & Hogarth, R. M. (1999). The effects of financial incentives in experiments: a review and capital-labor-production framework. Journal of Risk and Uncertainty, 19(1-3), 7-42.
17. Carlin, P. S. (1992). Violations of the reduction and independence axioms in Allais-type and common ratio effect experiments. Journal of Economic Behavior & Organization, 19(2), 213-235.
18. Cho, Y., & Luce, R. D. (1995). Tests of hypotheses about certainty equivalents and joint receipt of gambles. Organizational Behavior and Human Decision Processes, 64(3), 229-248.
19. Cohen, M., Jaffray, J.-Y., & Said, T. (1987). Experimental comparison of individual behavior under risk and under uncertainty for gains and for losses. Organizational Behavior and Human Decision Processes, 39(1), 1-22.
20. Cox, J. C., & Epstein, S. (1989). Preference reversals without the independence axiom. American Economic Review, 79(3), 408-426.
21. Cubitt, R. P., Starmer, C., & Sugden, R. (1998a). On the validity of the random lottery incentive system. Experimental Economics, 1(2), 115-131.
22. Cubitt, R. P., Starmer, C., & Sugden, R. (1998b). Dynamic choice and the common ratio effect: an experimental investigation. Economic Journal, 108(450), 1362-1380.
23. Deck, C. A., Lee, J., & Reyes, J. A. (2008). Risk attitudes in large stake gambles: evidence from a game show. Applied Economics, 40(1), 41-52.
24. Gächter, S., Orzen, H., Renner, E., & Starmer, C. (2009). Are experimental economists prone to framing effects? A natural field experiment. Journal of Economic Behavior & Organization, 70(3), 443-446.
25. Gilovich, T., Vallone, R., & Tversky, A. (1985). The hot hand in basketball: on the misperception of random sequences. Cognitive Psychology, 17(3), 295-314.
26. Green, D., Jacowitz, K. E., Kahneman, D., & McFadden, D. (1998). Referendum contingent valuation, anchoring, and willingness to pay for public goods. Resource and Energy Economics, 20(2), 85-116.
27. Greenwald, A. G. (1976). Within-subjects designs: to use or not to use? Psychological Bulletin, 83(2), 314-320.
28. Grether, D. M., & Plott, C. R. (1979). Economic theory of choice and the preference reversal phenomenon. American Economic Review, 69(4), 623-638.
29. Harless, D. W., & Camerer, C. F. (1994). The predictive utility of generalized expected utility theories. Econometrica, 62(6), 1251-1289.
30. Harrison, G. W. (1989). Theory and misbehavior of first-price auctions. American Economic Review, 79(4), 749-762.
31. Harrison, G. W. (1994). Expected utility theory and the experimentalists. Empirical Economics, 19(2), 223-253.
32. Harrison, G. W., Lau, M. I., & Rutström, E. E. (2007). Estimating risk attitudes in Denmark: a field experiment. The Scandinavian Journal of Economics, 109(2), 341-368.
33. Hey, J. D. (1995). Experimental investigations of errors in decision making under risk. European Economic Review, 39(3-4), 633-640.
34. Hey, J. D., & Lee, J. (2005a). Do subjects remember the past? Applied Economics, 37(1), 9-18.
35. Hey, J. D., & Lee, J. (2005b). Do subjects separate (or are they sophisticated)? Experimental Economics, 8(3), 233-265.
36. Hey, J. D., & Orme, C. (1994). Investigating generalizations of expected utility theory using experimental data. Econometrica, 62(6), 1291-1326.
37. Holt, C. A. (1986). Preference reversals and the independence axiom. American Economic Review, 76(3), 508-515.
38. Johnson, E. J., & Schkade, D. A. (1989). Bias in utility assessments: further evidence and explanations. Management Science, 35(4), 406-424.
39. Kahneman, D. (2002). Maps of bounded rationality: a perspective on intuitive judgment and choice. Prize lecture for the Nobel Foundation, 8 December, 2002, Stockholm, Sweden.
40. Kameda, T., & Davis, J. H. (1990). The function of the reference point in individual and group risk decision making. Organizational Behavior and Human Decision Processes, 46(1), 55-76.
41. Keren, G. B., & Raaijmakers, J. G. W. (1988). On between-subjects versus within-subjects comparisons in testing utility theory. Organizational Behavior and Human Decision Processes, 41(2), 233-247.
42. Kühberger, A. (1998). The influence of framing on risky decisions: a meta-analysis. Organizational Behavior and Human Decision Processes, 75(1), 23-55.
43. Kühberger, A., Schulte-Mecklenbeck, M., & Perner, J. (1999). The effects of framing, reflection, probability, and payoff on risk preference in choice tasks. Organizational Behavior and Human Decision Processes, 78(3), 204-231.
44. Kühberger, A., Schulte-Mecklenbeck, M., & Perner, J. (2002). Framing decisions: hypothetical and real. Organizational Behavior and Human Decision Processes, 89(2), 1162-1175.
45. Langer, T., & Weber, M. (2008). Does commitment or feedback influence myopic loss aversion? An experimental analysis. Journal of Economic Behavior & Organization, 67(3-4), 810-819.
46. Lee, J. (2008). The effect of the background risk in a simple chance improving decision model. Journal of Risk and Uncertainty, 36(1), 19-41.
47. Loomes, G., & Sugden, R. (1995). Incorporating a stochastic element into decision theories. European Economic Review, 39(3-4), 641-648.
48. Luce, R. D., & Suppes, P. (1965). Preference, utility, and subjective probability. In R. D. Luce, R. R. Bush, & E. Galanter (Eds.), Handbook of mathematical psychology (Vol. 3, pp. 249-410). New York: Wiley.
49. Moffatt, P. G. (2005). Stochastic choice and the allocation of cognitive effort. Experimental Economics, 8(4), 369-388.
50. Moffatt, P. G., & Peters, S. A. (2001). Testing for the presence of a tremble in economic experiments. Experimental Economics, 4(3), 221-228.
51. Myagkov, M. G., & Plott, C. R. (1997). Exchange economies and loss exposure: experiments exploring prospect theory and competitive equilibria in market environments. American Economic Review, 87(5), 801-828.
52. Post, G. T., van den Assem, M. J., Baltussen, G., & Thaler, R. H. (2008). Deal or no deal? Decision making under risk in a large-payoff game show. American Economic Review, 98(1), 38-71.
53. Rabin, M. (2002). Inference by believers in the law of small numbers. The Quarterly Journal of Economics, 117(3), 775-816.
54. Reilly, R. J. (1982). Preference reversal: further evidence and some suggested modifications in experimental design. American Economic Review, 72(3), 576-584.
55. Rosett, R. N. (1971). Weak experimental verification of the expected utility hypothesis. Review of Economic Studies, 38(4), 481-492.
56. Savage, L. J. (1954). The foundations of statistics. New York: Wiley (Second revised edition, 1972, New York: Dover Publications).
57. Schunk, D., & Betsch, C. (2006). Explaining heterogeneity in utility functions by individual differences in decision modes. Journal of Economic Psychology, 27(3), 386-401.
58. Sefton, M. (1992). Incentives in simple bargaining games. Journal of Economic Psychology, 13(2), 263-276.
59. Simonson, I., & Drolet, A. (2004). Anchoring effects on consumers' willingness-to-pay and willingness-to-accept. Journal of Consumer Research, 31(3), 681-690.
60. Smith, V. L. (1976). Experimental economics: induced value theory. American Economic Review, 66(2), 274-279.
61. Smith, V. L. (1982). Microeconomic systems as an experimental science. American Economic Review, 72(5), 923-955.
62. Smith, V. L., & Walker, J. M. (1993). Monetary rewards and decision costs in experimental economics. Economic Inquiry, 31(2), 245-261.
63. Stahl, D. O., & Haruvy, E. (2006). Other-regarding preferences: egalitarian warm glow, empathy, and group size. Journal of Economic Behavior & Organization, 61(1), 20-41.
64. Starmer, C. (2000). Developments in non-expected utility theory: the hunt for a descriptive theory of choice under risk. Journal of Economic Literature, 38(2), 332-382.
65. Starmer, C., & Sugden, R. (1991). Does the random-lottery incentive system elicit true preferences? An experimental investigation. American Economic Review, 81(4), 971-978.
66. Thaler, R. H., & Johnson, E. J. (1990). Gambling with the house money and trying to break even: the effects of prior outcomes on risky choice. Management Science, 36(6), 643-660.
67. Tversky, A. (1967a). Additivity, utility, and subjective probability. Journal of Mathematical Psychology, 4(2), 175-201.
68. Tversky, A. (1967b). Utility theory and additivity analysis of risky choices. Journal of Experimental Psychology, 75(1), 27-36.
69. Tversky, A., & Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science, 211(4481), 453-458.
70. van den Assem, M. J., van Dolder, D., & Thaler, R. H. (2011). Split or steal? Cooperative behavior when the stakes are large. Management Science. doi: 10. 1287/MNSC. 1110. 1413.
71. Wakker, P. P. (2010). Prospect theory: for risk and ambiguity. Cambridge: Cambridge University Press.
72. Wardrop, R. L. (1995). Simpson's paradox and the hot hand in basketball. The American Statistician, 49(1), 24-28.
73. Wilcox, N. T. (1993). Lottery choice: incentives, complexity and decision time. Economic Journal, 103(421), 1397-1417.
74. Wilcox, N. T. (2008). Stochastic models for binary discrete choice under risk: a critical primer and econometric comparison. In J. C. Cox & G. W. Harrison (Eds.), Research in experimental economics: Vol. 12. Risk aversion in experiments (pp. 197-292). Bingley: Emerald.
75. Wooldridge, J. M. (2003). Cluster-sample methods in applied econometrics. American Economic Review, 93(2), 133-138.
76. Yaari, M. E. (1965). Convexity in the theory of choice under risk. The Quarterly Journal of Economics, 79(2), 278-290.