Incentive Effects on Risk Attitude in Small Probability Prospects

Mathieu Lefebvre, Ferdinand Vieider () and Marie Claire Villeval

No 4545, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Most studies on the role of incentives on risk attitude report data obtained from within-subject experimental investigations. This may however raise an issue of sequentiality of effects as later choices may be influenced by earlier ones. This paper reports instead between-subject results on the effect of monetary stakes on risk attitudes for small probability prospects in a laboratory experiment. Under low stakes, we find the typical risk seeking behavior for small probabilities predicted by the prospect theory. But under high stakes, we provide some evidence that risk seeking behavior is dramatically reduced. This could suggest that utility is not consistently concave over the outcome space, but rather contains a convex section for very small amounts.

Keywords: decision; incentives; risk attitude; experiment (search for similar items in EconPapers)
JEL-codes: C91 D81 D89 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2009-11
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
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Published - published in: Economics Letters, 2010, 109 (2), 115-120

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https://docs.iza.org/dp4545.pdf (application/pdf)

Related works:
Journal Article: Incentive effects on risk attitude in small probability prospects (2010)
Working Paper: Incentive Effects on Risk Attitude in Small Probability Prospects (2010)
Working Paper: Incentive Effects on Risk Attitude in Small Probability Prospects (2009)
Working Paper: Incentive Effects on Risk Attitude in Small Probability Prospects (2009)
Working Paper: Incentive Effects on Risk Attitude in Small Probability Prospects (2009)
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