Random Incentive Systems in a Dynamic Choice Experiment

32 Pages Posted: 9 Apr 2008 Last revised: 27 Jul 2012

See all articles by Guido Baltussen

Guido Baltussen

Erasmus University Rotterdam (EUR); Robeco Asset Management - Quantitative Investing

Thierry Post

Graduate School of Business of Nazarbayev University

Martijn J. van den Assem

VU Amsterdam - School of Business and Economics

Peter P. Wakker

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: October 17, 2011

Abstract

Experiments frequently use a random incentive system (RIS), where only tasks that are randomly selected at the end of the experiment are for real. The most common type pays every subject one out of her multiple tasks (within-subjects randomization). Recently, another type has become popular, where a subset of subjects is randomly selected, and only these subjects receive one real payment (between-subjects randomization). In earlier tests with simple, static tasks, RISs performed well. The present study investigates RISs in a more complex, dynamic choice experiment. We find that between-subjects randomization reduces risk aversion. While within-subjects randomization delivers unbiased measurements of risk aversion, it does not eliminate carry-over effects from previous tasks. Both types generate an increase in subjects’ error rates. These results suggest that caution is warranted when applying RISs to more complex and dynamic tasks.

Keywords: random incentive system, incentives, experimental measurement, risky choice, risk aversion, dynamic choice, tremble, within-subjects design, between-subjects design

JEL Classification: C91, D81

Suggested Citation

Baltussen, Guido and Post, Thierry and van den Assem, Martijn J. and Wakker, Peter P., Random Incentive Systems in a Dynamic Choice Experiment (October 17, 2011). Experimental Economics, Vol. 15, No. 3, pp. 418-443, September 2012. Available at SSRN: https://ssrn.com/abstract=1118001

Guido Baltussen

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Robeco Asset Management - Quantitative Investing ( email )

Rotterdam, 3011 AG
Netherlands

Thierry Post

Graduate School of Business of Nazarbayev University ( email )

53 Kabanbay Batyra Avenue
Astana, 010000
Kazakhstan

Martijn J. Van den Assem (Contact Author)

VU Amsterdam - School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Peter P. Wakker

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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