Incentive effects on risk attitude in small probability prospects

Lefèbvre, Mathieu; Vieider, Ferdinand M.; Villeval, Marie Claire

doi:10.1016/j.econlet.2010.09.002

Cited by 14 publications

(10 citation statements)

References 18 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Now imagine that same individual but with some of the individual's choices perturbed relative to underlying preferences as a consequence of following a simple heuristic: specifically, playing it safe when the stakes are high. Evidence consistent with such an effect has been reported in various studies (e.g., Laury 2002, 2005;Weber and Chapman 2005;Fehr-Duda et al 2010;Lefebvre et al 2010). Here we show that the operation of this heuristic is another candidate explanation of the SRH effect.…”

Section: Possible Alternative Explanations For the Srh Effectsupporting

confidence: 79%

Reexamining How Utility and Weighting Functions Get Their Shapes: A Quasi-Adversarial Collaboration Providing a New Interpretation

et al. 2019

View full text Add to dashboard Cite

In a paper published in Management Science in 2015, Stewart, Reimers, and Harris (SRH) demonstrated that shapes of utility and probability weighting functions could be manipulated by adjusting the distributions of outcomes and probabilities on offer as predicted by the theory of decision by sampling. So marked were these effects that, at face value, they profoundly challenge standard interpretations of preference theoretic models in which such functions are supposed to reflect stable properties of individual risk preferences. Motivated by this challenge, we report an extensive replication exercise based on a series of experiments conducted as a quasi-adversarial collaboration across different labs and involving researchers from both economics and psychology. We replicate the SRH effect across multiple experiments involving changes in many design features; importantly, however, we find that the effect is also present in designs modified so that decision by sampling predicts no effect. Although those results depend on model-based inferences, an alternative analysis using a model-free comparison approach finds no evidence of patterns akin to the SRH effect. On the basis of simulation exercises, we demonstrate that the SRH effect may be a consequence of misspecification biases arising in parameter recovery exercises that fit imperfectly specified choice models to experimental data. Overall, our analysis casts the SRH effect in an entirely new light.

show abstract

Section: Possible Alternative Explanations For the Srh Effectsupporting

confidence: 79%

Reexamining How Utility and Weighting Functions Get Their Shapes: A Quasi-Adversarial Collaboration Providing a New Interpretation

et al. 2019

View full text Add to dashboard Cite

show abstract

“…Small payoffs may encourage participants to seek more risk (Lefebvre et al 2010). The payoffs in our experiment were very small relative to those associated with the agistment market.…”

Section: Discussionmentioning

confidence: 98%

Economic Behavior in the Face of Resource Variability and Uncertainty

McAllister¹,

Tisdell²,

Reeson³

et al. 2011

E&S

View full text Add to dashboard Cite

ABSTRACT. Policy design is largely informed by the traditional economic viewpoint that humans behave rationally in the pursuit of their own economic welfare, with little consideration of other regarding behavior or reciprocal altruism. New paradigms of economic behavior theory are emerging that build an empirical basis for understanding how humans respond to specific contexts. Our interest is in the role of human relationships in managing natural resources (forage and livestock) in semiarid systems, where spatial and temporal variability and uncertainty in resource availability are fundamental system drivers. In this paper we present the results of an economic experiment designed to explore how reciprocity interacts with variability and uncertainty. This behavior underpins the Australian tradable grazing rights, or agistment, market, which facilitates livestock mobility as a human response to a situation where rainfall is so variable in time and space that it is difficult to maintain an economically viable livestock herd on a single management unit. Contrary to expectations, we found that variability and uncertainty significantly increased transfers and gains from trade within our experiment. When participants faced variability and uncertainty, trust and reciprocity took time to build. When variability and uncertainty were part of the experiment trust was evident from the onset. Given resource variability and uncertainty are key drivers in semiarid systems, new paradigms for understanding how variability shapes behavior have special importance.

show abstract

“…An alternative prediction derives from the observation that being responsible for somebody else entails deciding over twice the monetary stakes. In this case, we would expect utility to be more concave under responsibility than in the individual treatment (or the weighting function to shift uniformly downwards for gains), since risk aversion has been found to increase in stake levels for both large and small probabilities for gains (Fehr‐Duda et al ; Holt and Laury ; Kachelmeier and Shehata ; Lefebvre, Vieider, and Villeval ). This alternative hypothesis will also be tested below.…”

mentioning

confidence: 99%

Risk Taking for Oneself and Others: A Structural Model Approach

et al. 2015

Self Cite

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Copyright remains with the author(s).Discussion papers of the WZB serve to disseminate the research results of work in progress prior to publication to encourage the exchange of ideas and academic debate. Inclusion of a paper in the discussion paper series does not constitute publication and should not limit publication in any other venue. The discussion papers published by the WZB represent the views of the respective author(s) and not of the institute as a whole. We examine situations in which a decision maker decides for another person as well as herself under conditions of payoff equality, and compare such decisions under responsibility to individual decisions. Estimating a structural model we find that responsibility leaves utility curvature unaffected, but accentuates the subjective distortion of very small and very large probabilities for both gains and losses. This results in an accentuation of prospect theory's four-fold pattern of risk preferences under responsibility. In addition, we also find that responsibility reduces loss aversion according to some common definitions of the latter. These results serve to reconcile some of the still largely contradictory findings in the literature on decisions for oneself and others under payoff equality.

show abstract

Incentive effects on risk attitude in small probability prospects

Cited by 14 publications

References 18 publications

Reexamining How Utility and Weighting Functions Get Their Shapes: A Quasi-Adversarial Collaboration Providing a New Interpretation

Reexamining How Utility and Weighting Functions Get Their Shapes: A Quasi-Adversarial Collaboration Providing a New Interpretation

Economic Behavior in the Face of Resource Variability and Uncertainty

Risk Taking for Oneself and Others: A Structural Model Approach

Contact Info

Product

Resources

About