Innumeracy and incentives: A ratio bias experiment

Abstract

The Ratio-Bias phenomenon, observed by psychologist Seymour Epstein and colleagues, is a systematic manifestation of irrationality. When offered a choice between two lotteries, individuals consistently choose the lottery with the greater number of potential successes, even when it offers a smaller probability of success. In the current study, we conduct experiments to confirm this phenomenon and test for the existence of Bias as distinct from general irrationality. Moreover, we examine the effect of introducing a monetary incentive of varying size (depending on the treatment) on the extent of irrational choices within this framework. We confirm the existence of the Bias. Moreover, the existence of an incentive significantly reduces the extent of irrationality exhibited, and that this effect is roughly linear in response to changes in the size of the incentive within the magnitudes investigated.

Behavioral economics enhancers

“…In relevant judgment studies, there have been many mixed results. Some studies did not find a positive effect of incentivization (Awasthi and Pratt, 1990;Baillon et al, 2022;Enke et al, 2023;Tversky and Kahneman, 1983;Wright and Anderson, 1989), while others demonstrated it (Charness et al, 2010;Dale et al, 2007;Enke et al, 2023;Epley and Gilovich, 2005;Lefebvre et al, 2011;Simmons et al, 2010;Wright and Aboul-Ezz, 1988, in different biases). To stray from anecdotes and cherry-picking, we mainly focus on meta-analyses of the literature.…”