Abstract

http://ssrn.com/abstract=1517796
 
 

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Incentive Effects on Risk Attitude in Small Probability Prospects


Mathieu Lefebvre


University of Liege - Research Center on Public and Population Economics

Ferdinand Vieider


University of Lyon, CNRS-GATE; German Institute for Economic Research (DIW Berlin)

Marie-Claire Villeval


National Center for Scientific Research (CNRS) - Institute of Economic Theory and Analysis (GATE); Institute for the Study of Labor (IZA)

2009

GATE Working Paper No. 09-26

Abstract:     
Most studies on the role of incentives on risk attitude report data obtained from within-subject experimental investigations. This may however raise an issue of sequentiality of effects as later choices may be influenced by earlier ones. This paper reports instead between-subject results on the effect of monetary stakes on risk attitudes for small probability prospects in a laboratory experiment. Under low stakes, we find the typical risk seeking behavior for small probabilities predicted by the prospect theory. But under high stakes, we provide some evidence that risk seeking behavior is dramatically reduced. This could suggest that utility is not consistently concave over the outcome space, but rather contains a convex section for very small amounts.

Number of Pages in PDF File: 15

Keywords: Risk attitude, Incentives, Decision, Experiment

JEL Classification: C91, D81, D89

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Date posted: December 9, 2009 ; Last revised: September 23, 2013

Suggested Citation

Lefebvre, Mathieu and Vieider, Ferdinand and Villeval, Marie-Claire, Incentive Effects on Risk Attitude in Small Probability Prospects (2009). GATE Working Paper No. 09-26. Available at SSRN: http://ssrn.com/abstract=1517796 or http://dx.doi.org/10.2139/ssrn.1517796

Contact Information

Mathieu Lefebvre
University of Liege - Research Center on Public and Population Economics ( email )
B-4000 Liege
Belgium
Ferdinand Vieider (Contact Author)
University of Lyon, CNRS-GATE ( email )
93, chemin des Mouilles
Ecully, 69130
France
German Institute for Economic Research (DIW Berlin)
Mohrenstraße 58
Berlin, 10117
Germany
Marie-Claire Villeval
National Center for Scientific Research (CNRS) - Institute of Economic Theory and Analysis (GATE) ( email )
93, chemin des Mouilles
Ecully, 69130
France
+33 472 86 60 79 (Phone)
+33 472 86 60 90 (Fax)
HOME PAGE: http://www.gate.cnrs.fr/equipe/perso/villeval/villeval.html
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
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