Risk Aversion and Incentive Effects: Comment

UCF Economics Working Paper No. 03-19

8 Pages Posted: 20 Apr 2005

See all articles by Glenn W. Harrison

Glenn W. Harrison

Georgia State University - J. Mack Robinson College of Business

Eric Johnson

University of South Carolina - Moore School of Business - Department of Economics

Melayne Morgan McInnes

University of South Carolina - Darla Moore School of Business

E. Elisabet Rutström

University of Central Florida - College of Business Administration

Date Written: October 2004

Abstract

Holt and Laury, AER 2002, develop an experimental design to determine the risk aversion of an individual. They use their observations to argue that increased incentives appear to change risk attitudes, leading to greater risk aversion. However, their main treatment, the effects of scaling up the stakes of the lottery choice task, is confounded by a simple order effect. We extend their design to test for these order effects, and show that they are indeed significant. The size of the stakes still affects measured risk aversion, but the effect is only one-half of the apparent effect when one does not control for task order.

Keywords: Risk aversion, experiments

JEL Classification: D81, C91

Suggested Citation

Harrison, Glenn William and Johnson, Eric and McInnes, Melayne Morgan and Rutstrom, Elisabet, Risk Aversion and Incentive Effects: Comment (October 2004). UCF Economics Working Paper No. 03-19, Available at SSRN: https://ssrn.com/abstract=698543 or http://dx.doi.org/10.2139/ssrn.698543

Glenn William Harrison (Contact Author)

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
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HOME PAGE: http://www.cear.gsu.edu/

Eric Johnson

University of South Carolina - Moore School of Business - Department of Economics ( email )

The Francis M. Hipp Building
1705 College Street
Columbia, SC 29208
United States

Melayne Morgan McInnes

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States

Elisabet Rutstrom

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

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