Atlantic Economic Journal

, Volume 39, Issue 3, pp 249–260

The Effect of Payment Methods on Risk Aversion

Article

Abstract

Risk aversion experiments such as those by Holt and Laury (2002, 2005) measure risk aversion by examining subjects’ responses to a series of probability-ordered choices. Subjects are paid real money rewards, using the random round payment method in which the amount is determined by one randomly selected decision. The findings reported here were obtained from 119 subjects who confronted the same choice set and payment amounts, but 60 of these subjects were paid using the random-round method while the remaining 59 were paid based on an average of all their choices, the accumulated value method. The accumulated value payment method simulates portfolio returns, as opposed to returns from stand alone investments. Results indicate that accumulated value subjects took more risk and made more inconsistent decisions.

Keywords

Risk aversion Experimental economics/finance 

JEL

D81 G11 C91 

Copyright information

© International Atlantic Economic Society 2011

Authors and Affiliations

  1. 1.Craig School of BusinessMissouri Western State UniversitySt. JosephUSA
  2. 2.Department of EconomicsMissouri Western State UniversitySt. JosephUSA

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