SFB 303 Discussion Paper No. B - 343

Author: Selten, Reinhard, Abdolkarim Sadrieh, and Klaus Abbink
Title: Money does Not Induce Risk Neutral Behavior, but Binary Lotteries Do even Worse
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 valuation 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 sujects 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.
Keywords: Binary lottery payoffs, choices under risk, risk preferences, design of experiments, experimental economics
JEL-Classification-Number: C90, C91, D80, D81
Creation-Date: December 1995
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