Whose money is it anyway? Using prepaid incentives in experimental economics to create a natural environment

Abstract

Simulating a real world environment is of utmost importance for achieving accurate and meaningful results in experimental economics. Offering monetary incentives is a common method of creating this environment. In general, experimenters provide the rewards at the time of experiment. In this paper, we argue that receiving the reward at the time of the experiment may lead participants to make decisions as if the money they are using were not their own. To solve this problem, we devised a "prepaid mechanism" that encourages participants to use the money as if it were their own.

Are Risk-Preferences Dynamic? Within-Subject Variation in Risk-Taking as a Function of Background Music

“…After 3 Subsequent to having carried out the experiments we came across a recent paper by Rosenboim and Shavit (2012) who argue and present supporting evidence in favor of this kind of prepaid mechanism that we used.…”

Imagine Being a Nice Guy: A Note on Hypothetical vs. Incentivized Social Preferences

“…Economists usually argue that financial rewards create a more realistic environment within the lab (Rosenboim and Shavit, 2012), causing participants to consider their decisions more carefully (Carpenter et al, 2005). Psychologists, on the other hand, tend to believe that experimental participants are generally intrinsically motivated and need no financial reward for decision-making (Camerer and Hogarth, 1999).…”

Creating a Domain of Losses in the Laboratory: Effects of Endowment Size

“…In particular, this study only considers two different initial endowment levels. Future research including sessions with additional endowment levels, including an endowment level low enough that Option A payoffs are also negative, would be valuable 6 This was done to encourage subjects to treat each round within a sequence as the same decision task, beginning with an endowment of either 25 ECU or 7 ECU, instead of with their prior earnings or losses built into the next round's endowment. 7 Complete experimental instructions and screenshots are included in Appendix.…”

“…They were informed of this in the instructions, and they were told that if they wished to keep a record of profits, choices, etc. from previous rounds, they may do so on paper that was provided 6 .…”

“…Though not specifically in the loss domain, Thaler and Johnson (1990) [5] find a "house money effect", or increased risk-seeking behavior following a windfall gain. Comparable results were found by Rosenboim and Shavit (2012) [6] and Davis et al (2010) [7]. This "house money effect" has also been translated to increased generosity in dictator games [8,9], and charitable giving [10].…”