Money Does Not Induce Risk Neutral Behavior,but Binary Lotteries Do even Worse |
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Authors: | Selten Reinhard Sadrieh Abdolkarim Abbink Klaus |
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Institution: | (1) Laboratorium für experimentelle Wirtschaftsforschung, Adenauerallee 24-42, D-53113 Bonn |
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Abstract: | 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 evaluation 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 subjects 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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Keywords: | Binary lottery payoffs Choices under risk Risk preferences Design of experiments Experimental economics |
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