Easy Money, Cheap Talk, or Spuds: Inducing Risk Aversion in Economics Experiments
12 Pages Posted: 12 Aug 2019 Last revised: 13 Oct 2019
Date Written: August 6, 2019
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: Suggested Citation