|Reference : Incentive Effects on Risk Attitude in Small Probability Prospects|
|E-prints/Working papers : Already available on another site|
|Business & economic sciences : Microeconomics|
|Incentive Effects on Risk Attitude in Small Probability Prospects|
|Lefebvre, Mathieu [Université de Liège - ULg > HEC-Ecole de gestion de l'ULg : UER > Economie publique appliquée >]|
|Villeval, Marie-Claire [> >]|
|Vieider, Ferdinand [> >]|
|IZA Discussion paper 4545|
|[en] Most studies on the role of incentives on risk attitude report data obtained from within-subject
experimental investigations. This may however raise an issue of sequentiality of effects as
later choices may be influenced by earlier ones. This paper reports instead between-subject
results on the effect of monetary stakes on risk attitudes for small probability prospects in a
laboratory experiment. Under low stakes, we find the typical risk seeking behavior for small
probabilities predicted by the prospect theory. But under high stakes, we provide some
evidence that risk seeking behavior is dramatically reduced. This could suggest that utility is
not consistently concave over the outcome space, but rather contains a convex section for
very small amounts.
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