How Real is Hypothetical? A High-Stakes Test of the Allais Paradox

Uri Gneezy, Yoram Halevy, Brian Hall, Theo Offerman and Jeroen van de Ven

Working Papers from University of Toronto, Department of Economics

Abstract: Researchers in behavioral and experimental economics often argue that only incentive-compatible mechanisms can elicit effort and truthful responses from participants. Others argue that participants make less-biased decisions when the stakes are sufficiently high. Are these claims correct? We investigate the change in behavior as incentives are scaled up in the Allais paradox, and document an increase , not decrease, in deviations from expected utility with higher stakes. We also find that if one needs to approximate participants’ behavior in real high-stakes Allais (which are often too expensive to conduct), it is better to use hypothetically high stakes than real low stakes, as is typically the practice today.

Keywords: high stakes; real and hypothetical incentives; Allais paradox; Expected Utility (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2024-08-17
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:tecipa-783

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