Download this Paper Open PDF in Browser

Incentive Effects on Risk Attitude in Small Probability Prospects

GATE Working Paper No. 09-26

15 Pages Posted: 9 Dec 2009 Last revised: 23 Sep 2013

Mathieu Lefebvre

University of Liege - Research Center on Public and Population Economics

Ferdinand M. Vieider

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

Marie Claire Villeval

Groupe d'Analyse et de Théorie Economique (GATE), CNRS; IZA Institute of Labor Economics; Department of Public Finance, University of Innsbruck

Date Written: 2009

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

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

Mathieu Lefebvre

University of Liege - Research Center on Public and Population Economics ( email )

B-4000 Liege
Belgium

Ferdinand M. 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

WZB Berlin Social Science Center ( email )

Reichpietschufer 50
D-10785 Berlin, 10785
Germany

Marie Claire Villeval

Groupe d'Analyse et de Théorie Economique (GATE), CNRS ( 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

IZA Institute of Labor Economics

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

Department of Public Finance, University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Paper statistics

Downloads
21
Abstract Views
410