Incentive Effects on Risk Attitude in Small Probability Prospects

16 Pages Posted: 9 Nov 2009

See all articles by Mathieu Lefèbvre

Mathieu Lefèbvre

University of Strasbourg

Ferdinand M. Vieider

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

Marie Claire Villeval

GATE - CNRS; IZA Institute of Labor Economics

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.

Keywords: risk attitude, incentives, decision, experiment

JEL Classification: C91, D81, D89

Suggested Citation

Lefèbvre, Mathieu and Vieider, Ferdinand M. and Villeval, Marie Claire, Incentive Effects on Risk Attitude in Small Probability Prospects. IZA Discussion Paper No. 4545, Available at SSRN: https://ssrn.com/abstract=1501981 or http://dx.doi.org/10.2139/ssrn.1501981

Mathieu Lefèbvre (Contact Author)

University of Strasbourg ( email )

Strasbourg
France

Ferdinand M. Vieider

University of Lyon, CNRS-GATE ( email )

93, chemin des Mouilles
Ecully, 69130
France

German Institute for Economic Research (DIW Berlin)

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Berlin, 10117
Germany

WZB Berlin Social Science Center ( email )

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D-10785 Berlin, 10785
Germany

Marie Claire Villeval

GATE - CNRS ( email )

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LYON, 69007
France
+33 688314656 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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