Abstract

http://ssrn.com/abstract=1411802
 


 



High Stakes Behavior with Low Payoffs: Inducing Preferences with Holt-Laury Gambles


John W. Dickhaut


Chapman University (Deceased)

Daniel Houser


George Mason University - Department of Economics

Jason Anthony Aimone


Baylor University - Department of Economics

Dorina Tila


George Washington University

Cathleen A. Johnson


University of Arizona - Department of Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO)

May 29, 2009


Abstract:     
A continuing goal of experiments is to understand risky decisions when the decisions are important. Often a decision’s importance relates to the magnitude of the associated monetary stake. Khaneman and Tversky (1979) argue that risky decisions in high stakes environments can be informed using questionnaires with hypothetical choices (since subjects have no incentive to answer questions falsely.) However, results reported by Holt and Laury (2002, henceforth HL), as well as replications by Harrison et al. (2005) suggest that questionnaire responses and decisions in "low" monetary payoff environments do not effectively predict decisions in "high" monetary payoff environments. Thus, a potential implication of the HL results is that studying decisions in high stakes environments requires using high stakes. Here we describe and implement a procedure for studying high-stakes behavior in a low-stakes environment. We use the binary-lottery reward technique (introduced by Berg, et al (1986)) to induce preferences in a way that is consistent with the decisions reported by HL under a variety of stake sizes. The resulting decisions, all made in low-stakes environments, reflect surprisingly well the noisy choice behavior reported by HL’s subjects even in their high-stakes environment. This finding is important because inducing preferences evidently requires substantially less cost than paying people to participate in extremely high-stakes games.

Number of Pages in PDF File: 24

Keywords: Inducing preferences, high-stakes, experiments

JEL Classification: C81, C91, D81

working papers series


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Date posted: June 8, 2009  

Suggested Citation

Dickhaut, John W. and Houser, Daniel and Aimone, Jason Anthony and Tila, Dorina and Johnson, Cathleen A., High Stakes Behavior with Low Payoffs: Inducing Preferences with Holt-Laury Gambles (May 29, 2009). Available at SSRN: http://ssrn.com/abstract=1411802 or http://dx.doi.org/10.2139/ssrn.1411802

Contact Information

John Dickhaut
Chapman University (Deceased)
Daniel Houser
George Mason University - Department of Economics ( email )
4400 University Drive
Fairfax, VA 22030
United States
Jason Anthony Aimone (Contact Author)
Baylor University - Department of Economics ( email )
P.O. Box 98003
Waco, TX 76798-8003
United States
Dorina Tila
George Washington University ( email )
2121 I Street NW
Washington, DC 20052
United States
Cathleen Amanda Johnson
University of Arizona - Department of Economics ( email )
McClelland Hall
Tucson, AZ 85721-0108
United States
Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )
2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada
514-985-4000, ext. 3034 (Phone)
Feedback to SSRN


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