Experimental Assessment of Utility Functions Induced by Fixed and Uncertain Targets

Maximilian Zellner () and Ali E. Abbas ()
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Maximilian Zellner: University of Southern California, Los Angeles, California 90089
Ali E. Abbas: University of Southern California, Los Angeles, California 90089

Decision Analysis, 2023, vol. 20, issue 3, 187-201

Abstract: This paper presents the results of four lottery-type experiments that investigate the effects of incentive structures on decision-making under uncertainty. We compare choices made with and without incentives, with fixed targets, with binary targets, and with four-outcome targets that are discretized from a logistic distribution. The results of the behavioral experiments (i) validate theoretical findings of utility functions induced by fixed and uncertain targets. Further, the behavioral results show that (ii) individuals’ choices are indeed affected by incentive structures, which we quantify by several deviation measures. (iii) Defined consistency measures show that choices under uncertain targets become less consistent as the number of uncertain target outcomes increases. The results of these experiments provide insights into the effects of setting incentive structures on decision-making behavior.

Keywords: incentives; induced utility; effective utility; behavioral experiment (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ordeca:v:20:y:2023:i:3:p:187-201

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