Book chapter
Chapter 115 On the Performance of the Lottery Procedure for Controlling Risk Preferences
Handbook of Experimental Economics Results, pp.1087-1097
Elsevier B.V
2008
DOI: 10.1016/S1574-0722(07)00115-1
Abstract
This chapter describes the lottery procedure for inducing preferences over units of experimental exchange and show how it is supported by several experiments on behavior in simple contexts. This chapter reviews various evidence from a set of paired choice and pricing tasks designed to determine whether subjects' revealed preferences over gambles are consistent with attempted risk preference induction. There is strong support for the performance of inducing when subjects choose between paired gambles. Subjects induced to be risk seeking nearly always choose the riskier gamble, while those induced to be risk averse choose the less risky one. There is similar support for pricing gambles, but the strength of the effect is a function of the variance of the gambles. This is consistent with other experimental evidence about the importance of saliency. Risk preferences matter little when there is little risk! As risk increases, risk preferences should become more important in the experiments. Subjects appear to price gambles more consistently with their induced risk preferences as variance increases.
Details
- Title: Subtitle
- Chapter 115 On the Performance of the Lottery Procedure for Controlling Risk Preferences
- Creators
- Joyce E. Berg - University of IowaThomas A. Rietz - University of IowaJohn W. Dickhaut - University of Minnesota
- Resource Type
- Book chapter
- Publication Details
- Handbook of Experimental Economics Results, pp.1087-1097
- Publisher
- Elsevier B.V
- DOI
- 10.1016/S1574-0722(07)00115-1
- ISSN
- 1574-0722
- Language
- English
- Date published
- 2008
- Academic Unit
- Finance; Accounting
- Record Identifier
- 9984380493502771
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