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Theory and Decision

, Volume 77, Issue 3, pp 423–438 | Cite as

Experimental payment protocols and the Bipolar Behaviorist

  • Glenn W. Harrison
  • J. Todd Swarthout
Article

Abstract

If someone claims that individuals behave as if they violate the independence axiom (IA) when making decisions over simple lotteries, it is invariably on the basis of experiments and theories that must assume the IA through the use of the random lottery incentive mechanism (RLIM). We refer to someone who holds this view as a Bipolar Behaviorist, exhibiting pessimism about the axiom when it comes to characterizing how individuals directly evaluate two lotteries in a binary choice task, but optimism about the axiom when it comes to characterizing how individuals evaluate multiple lotteries that make up the incentive structure for a multiple-task experiment. We reject the hypothesis about subject behavior underlying this stance: we find that preferences estimated with a model that assumes violations of the IA are significantly affected when one elicits choices with procedures that require the independence assumption, as compared to choices elicited with procedures that do not require the assumption. The upshot is that one cannot consistently estimate popular models that relax the IA using data from experiments that assume the validity of the RLIM.

Keywords

Experiment Independence axiom Payment protocols  Random lottery incentive mechanism 

Notes

Acknowledgments

We are grateful to Jim Cox, Jimmy Martínez, John Quiggin, Elisabet Rutström, Vjollca Sadiraj, Ulrich Schmidt, Uzi Segal, and Nathaniel Wilcox for helpful discussions.

Supplementary material

11238_2014_9447_MOESM1_ESM.pdf (270 kb)
Supplementary material 1 (pdf 269 KB)

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of Risk Management & Insurance and Center for the Economic Analysis of Risk, Robinson College of BusinessGeorgia State UniversityAtlantaUSA
  2. 2.Department of Economics and Experimental Economics Center, Andrew Young School of Policy StudiesGeorgia State UniversityAtlantaUSA

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