Random incentive systems in a dynamic choice experiment

Guido Baltussen, G. Thierry Post, Martijn J. van den Assem, Peter P. Wakker

Research output: Contribution to journalArticle

30 Citations (Scopus)

Abstract

Experiments frequently use a random incentive system (RIS), where only tasks that are randomly selected at the end of the experiment are for real. The most common type pays every subject one out of her multiple tasks (within-subjects randomization). Recently, another type has become popular, where a subset of subjects is randomly selected, and only these subjects receive one real payment (between-subjects randomization). In earlier tests with simple, static tasks, RISs performed well. The present study investigates RISs in a more complex, dynamic choice experiment. We find that between-subjects randomization reduces risk aversion. While within-subjects randomization delivers unbiased measurements of risk aversion, it does not eliminate carry-over effects from previous tasks. Both types generate an increase in subjects' error rates. These results suggest that caution is warranted when applying RISs to more complex and dynamic tasks.

Original languageEnglish
Pages (from-to)418-443
Number of pages26
JournalExperimental Economics
Volume15
Issue number3
DOIs
Publication statusPublished - Sep 2012

Keywords

  • Between-subjects design
  • Dynamic choice
  • Experimental measurement
  • Incentives
  • Random incentive system
  • Risk aversion
  • Risky choice
  • Tremble
  • Within-subjects design

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)

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