Theory and Decision

, Volume 46, Issue 3, pp 213–252

Money Does Not Induce Risk Neutral Behavior, but Binary Lotteries Do even Worse

  • Reinhard Selten
  • Abdolkarim Sadrieh
  • Klaus Abbink
Article

Abstract

If payoffs are tickets for binary lotteries, which involve only two money prizes, then rationality requires expected value maximization in tickets. This payoff scheme was increasingly used to induce risk neutrality in experiments. The experiment presented here involved lottery choice and evaluation tasks. One subject group was paid in binary lottery tickets, another directly in money. Significantly greater deviations from risk neutral behavior are observed with binary lottery payoffs. This discrepancy increases when subjects have easy access to the alternatives' expected values and mean absolute deviations. Behavioral regularities are observed at least as often as with direct money payoffs.

Binary lottery payoffs Choices under risk Risk preferences Design of experiments Experimental economics 

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Copyright information

© Kluwer Academic Publishers 1999

Authors and Affiliations

  • Reinhard Selten
    • 1
  • Abdolkarim Sadrieh
    • 1
  • Klaus Abbink
    • 1
  1. 1.Laboratorium für experimentelle WirtschaftsforschungBonn

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