Inducing Risk Neutral Preferences with Binary Lotteries

A Reconsideration

Glenn W. Harrison, Jimmy Martínez-Correa, J. Todd Swarthout

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We evaluate the binary lottery procedure for inducing risk neutral behavior. We strip the experimental implementation down to bare bones, taking care to avoid any potentially confounding assumptions about behavior having to be made. In particular, our evaluation does not rely on the assumed validity of any strategic equilibrium behavior, or even the customary independence axiom. We show that subjects sampled from our population are generally risk averse when lotteries are defined over monetary outcomes, and that the binary lottery procedure does indeed induce a statistically significant shift toward risk neutrality. This striking result generalizes to the case in which subjects make several lottery choices and one is selected for payment.
Original languageEnglish
JournalJournal of Economic Behavior & Organization
Volume94
Issue numberOctober
Pages (from-to)145-159
ISSN0167-2681
DOIs
Publication statusPublished - 2013

Cite this

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abstract = "We evaluate the binary lottery procedure for inducing risk neutral behavior. We strip the experimental implementation down to bare bones, taking care to avoid any potentially confounding assumptions about behavior having to be made. In particular, our evaluation does not rely on the assumed validity of any strategic equilibrium behavior, or even the customary independence axiom. We show that subjects sampled from our population are generally risk averse when lotteries are defined over monetary outcomes, and that the binary lottery procedure does indeed induce a statistically significant shift toward risk neutrality. This striking result generalizes to the case in which subjects make several lottery choices and one is selected for payment.",
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Inducing Risk Neutral Preferences with Binary Lotteries : A Reconsideration. / Harrison, Glenn W. ; Martínez-Correa, Jimmy; Swarthout, J. Todd .

In: Journal of Economic Behavior & Organization, Vol. 94, No. October, 2013, p. 145-159.

Research output: Contribution to journalJournal articleResearchpeer-review

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