Experimental Economics

, Volume 13, Issue 2, pp 189–205 | Cite as

My money or yours: house money payment effects

  • Larry R. Davis
  • B. Patrick Joyce
  • Matthew R. Roelofs
Article

Abstract

This paper reports the results of an experiment designed to study how subjects’ decision making may be affected by the timing of participation payments (or show-up fees). The experiment follows Davis et al. (J. Econ. 30:69–95, 2004) where subjects were asked to make a sequential purchase decision and were given the opportunity to purchase information about the value of a good prior to a decision to purchase the good itself. There, subjects purchased information less often than expected which was interpreted as risk-seeking behavior. Here, we test a payment hypothesis by varying the timing of the participation payment. Payment of a show-up fee before the decision-making stages of the experiment increases information purchase, which we interpret as an increase in risk-averse behavior.

Keywords

Payment timing Information Decision uncertainty Show-up fee Participation payment 

JEL Classification

B40 C91 D80 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Supplementary material

10683_2010_9235_MOESM1_ESM.doc (38 kb)
(DOC 38.5kb)

References

  1. Ackert, L. F., Charupat, N., Church, B. K., & Deaves, R. (2006). An experimental examination of the house money effect in a multi-period setting. Experimental Economics, 9(1), 5–16. CrossRefGoogle Scholar
  2. American Institute of Certified Public Accountants. (2002). Welcome to assurance services. http://www.aicpa.org/assurance/index, January 2002.
  3. Arkes, H. K., Joyber, C. A., Pezzo, M. V., Nash, J. G., Siegel-Jacobs, K., & Stone, E. (1994). The psychology of windfall gains. Organizational Behavior and Human Decision Processes, 59, 331–347. CrossRefGoogle Scholar
  4. Cherry, T. L., Kroll, S., & Shogren, J. F. (2005). The impact of endowment heterogeneity and origin on public good contributions: evidence from the lab. Journal of Economic Behavior and Organization, 57, 357–365. CrossRefGoogle Scholar
  5. Clark, J. (2002). House money effects in public goods experiments. Experimental Economics, 5(3), 223–231. CrossRefGoogle Scholar
  6. Davis, L. R., Elliot, S. R., & Joyce, P. (2004). Assurance information: an experimental study. Journal of Economics, 30, 69–95. Google Scholar
  7. Friedman, D., & Sunder, S. (1994). Experimental methods: a primer for economists. Cambridge: Cambridge University Press. Google Scholar
  8. Harrison, G. (2006). House money effects in public goods experiments: comment. Experimental Economics, 10(7), 429–437. Google Scholar
  9. Harrison, G., & Ruström, E. E. (2008). Risk aversion in the laboratory. Research in Experimental Economics, 12, 41–196. CrossRefGoogle Scholar
  10. Harrison, G., Lau, M., & Ruström, E. (2007). Estimating risk attitudes in Denmark: a field experiment. Scandinavian Journal of Economics, 109(2), 341–368. CrossRefGoogle Scholar
  11. Harrison, G., Lau, M., & Ruström, E. (2009). Risk attitudes, randomization to treatment and self-selection into experiments. Journal of Economic Behavior and Organization, 70, 498–507. CrossRefGoogle Scholar
  12. Holt, C. A., & Laury, S. K. (2002). Risk aversion and incentive effects. American Economic Review, 92(5), 1644–1655. CrossRefGoogle Scholar
  13. Staw, B. M. (1976). Knee-deep in the big muddy: a study of escalating commitment to a chosen course of action. Organizational Behavior Human Performance, 16, 27–44. CrossRefGoogle Scholar
  14. Thaler, R., & Johnson, E. J. (1990). Gambling with the house money and trying to break even: the effect of prior outcomes on risky choice. Management Science, 36(6), 643–660. CrossRefGoogle Scholar
  15. Weber, M., & Zuchel, H. (2005). How do prior outcomes affect risk attitude? Comparing escalation of commitment and the house-money effect. Decision Analysis, 2(1), 30–43. CrossRefGoogle Scholar

Copyright information

© Economic Science Association 2010

Authors and Affiliations

  • Larry R. Davis
    • 1
  • B. Patrick Joyce
    • 1
  • Matthew R. Roelofs
    • 2
  1. 1.School of Business and EconomicsMichigan Technological UniversityHoughtonUSA
  2. 2.Department of Economics, College of Business and EconomicsWestern Washington UniversityBellinghamUSA

Personalised recommendations