Journal of Risk and Uncertainty

, Volume 7, Issue 2, pp 199–213

Implementing and testing risk-preference-induction mechanisms in experimental sealed-bid auctions

  • Thomas A. Rietz
Article

DOI: 10.1007/BF01065814

Cite this article as:
Rietz, T.A. J Risk Uncertainty (1993) 7: 199. doi:10.1007/BF01065814

Abstract

Risk-preference-inducing lottery procedures can serve as valuable tools for experimental economists. However, questioning their effectiveness, experimenters may avoid them even when predictions and conclusions depend crucially on risk preferences. Here, I review risk-preference-induction attempts in sealed-bid auctions, discussing factors that promote or hinder success. Making the procedure very transparent and having subjects learn about it in simple environments promote success. Hysteresis resulting from switching between monetary payoffs and lottery procedures in one environment hinders success. Thus, lottery procedures appear sensitive to the implementation. However, implemented carefully, they can generate behavior consistent with the intended preferences.

Key words

experimental economicssealed-bid auctionsrisk-preference inductionleast-absolute-deviations estimators

Copyright information

© Kluwer Academic Publishers 1993

Authors and Affiliations

  • Thomas A. Rietz
    • 1
  1. 1.Department of Finance, J.L. Kellogg Graduate School of ManagementNorthwestern UniversityEvanston