Money does not induce risk neutral behavior, but binary lotteries do even worse

Reinhard Selten, Abdolkarim Sadrieh, Klaus Abbink

Research output: Contribution to journalArticleResearchpeer-review

68 Citations (Scopus)

Abstract

If payoffs are tickets for binary lotteries, which involve only two money prizes, then rationality requires expected value maximization in tickets. This payoff scheme was increasingly used to induce risk neutrality in experiments. The experiment presented here involved lottery choice and evaluation tasks. One subject group was paid in binary lottery tickets, another directly in money. Significantly greater deviations from risk neutral behavior are observed with binary lottery payoffs. This discrepancy increases when subjects have easy access to the alternatives' expected values and mean absolute deviations. Behavioral regularities are observed at least as often as with direct money payoffs.

Original languageEnglish
Pages (from-to)211-249
Number of pages39
JournalTheory and Decision
Volume46
Issue number3
Publication statusPublished - 1 Dec 1999
Externally publishedYes

Keywords

  • Binary lottery payoffs
  • Choices under risk
  • Design of experiments
  • Experimental economics
  • Risk preferences

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