Easy Money, Cheap Talk, or Spuds: Inducing Risk Aversion in Economics Experiments

12 Pages Posted: 12 Aug 2019 Last revised: 13 Oct 2019

See all articles by Hans K. Hvide

Hans K. Hvide

University of Bergen - Department of Economics; University of Aberdeen - Business School; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Jae Lee

University of Aberdeen

Terrance Odean

University of California, Berkeley - Haas School of Business

Date Written: August 6, 2019

Abstract

Experiments typically rely on small payments to incentivize participants. This works if participants view these payments as fungible with their own money, but if participants view the payments as a windfall, they may behave differently in experiments than in real life. We modify standard risky choice protocols by making participants earn their money at risk by completing manual tasks such as peeling potatoes. This leads to less risk-taking and to choices more consistent with those online survey respondents anticipate making with their own money. When realistic levels of risk aversion are important, experiments should require participants to earn their stakes.

Keywords: risk preferences, experimental methodology, risk taking

JEL Classification: C91, D14, D81, D91

Suggested Citation

Hvide, Hans and Lee, Jae and Odean, Terrance, Easy Money, Cheap Talk, or Spuds: Inducing Risk Aversion in Economics Experiments (August 6, 2019). Available at SSRN: https://ssrn.com/abstract=3433380 or http://dx.doi.org/10.2139/ssrn.3433380

Hans Hvide (Contact Author)

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

HOME PAGE: http://hans.hvide.googlepages.com/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA) ( email )

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

Jae Lee

University of Aberdeen ( email )

Aberdeen
United Kingdom

Terrance Odean

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-6767 (Phone)
510-666-2561 (Fax)

HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html

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