How would you bet?An experiment by

Anne Marie, Claralinda & Marina

LABREVEALED

PREFERENCES

MotivationExperiments aim at studying actual behavior of people

REALITYTRUE

PREFERENCES

PROBLEM

≠HYPOTHETICAL

BIAS“the difference between hypothetical

and actual statements of value” List & Gallet, 2001

MotivationHolt & Laury, 2002

risk preferences with high payoffs subjected to HBpeople are less risk adverse in choices involving high hypothetical payments (compared to real payments)

Are there experimental designs that minimize HBwhen high payoffs are used?

Bushong et al., 2010

WTP affected by physical presenceWTP increases sizably when people evaluate a real object (compared to just text or a picture)

QuestionRICH HYPOTHETICAL DESIGN incentives still hypothetical but enriched by simulation ✦ incentives have physical dimension ✦ ask people to consider the incentives as real and theirs

Have RH incentives a different effect on people risk-decisions?

SPARE HYPOTHETICAL DESIGN no care in let people imagine the incentive as real

Is the effect of RH incentives affected by the type of task (boring or engaging)?

NEW usual

MAIN QUESTION

CORRELATED QUESTION

ExpectationsBet (RH) < Bet (SH)

Bet (BT) > Bet (ET)

revealed risk-preferences closer to realitypeople are mainly risk-adverse

Why?

utility of people affected by funpeople get utility from taking risk in boring task

Why?

Design

TASK 1 THE HORSE RACEBet on which is the winner of the horse race

2 SIMILAR INDEPENDENT TASKS ‣ 6 equiprobable options ‣ 100€ available to bet (multiple of 5€) ‣ 9x gains

the engaging task

TASK 2 THE RANDOM GENERATIONBet on which is the generated number by random.org

the boring task

The enhanced experimental design ‣ PLAY MONEY

‣ SIMULATION STATEMENT

RICH HYPOTHETICALGROUP 1

Design2 GROUPS physically separated

the treatment group

SPARE HYPOTHETICALGROUP 2A common experimental design

the control group

YOUR NAME YOUR NUMBER

In a few minutes random.org will generate a number from 1 to 6.

You have 100€ that you can find in the envelope we give to you. Feel free to examine these money as much as you want. Please behave as if this money were your real money!! Think that it comes directly from your own wallet.

You can choose only on ONE number. On that number you can bet an amount of money from 0€ to 100€, in multiple of 5€. For example you can bet 0€, 5€, 20€, 50€, 75€, 95€ etc. If your number is generated, you will get 9 times your initial bet. For example, if you bet 10€ on number 1, and number 1 is generated, you will gain 90€.

Please fill in the form below with your choice. Remember to think of this money as if it were your real money. You have 2 minutes to take your decision. If you have any question, please raise your hand and and we will come to you.

I bet on number the amount of €

After you made your decision, please put the money you choose to bet in the envelope we gave to you. We will collect it.

Good luck!

TASK 2

DesignVISUALITAZION & TASK ATTRIBUTION

Questionare there differences in how rich hypothetical incentives impact on risk propensity compared to spare hypothetical incentives?

only with respect to high-stake payoffs.

Taskstwo different task, one more engaging and one more boring to study if the effects of both the incentives are influenced by the type of task/play.

Groupstwo different group. One group will have the rich hypothetical version of the two tasks and the other the spare version of the two tasks.

BORING TASK

ENGAGING TASK

RICH

SPARE

people does not reveal true preferences

Can we move to them?

behave regardless the type of incentive

Holt & Laurysubjects become increasingly risk averse as payoffs increase with real incentives, whereas increasing the scale of hypothetical incentives has no effect on behavior.

Goal Lower/reduce cost in economic experiments

HYPOTHETICALREAL

REVEALED PREFERENCESSTATED PREFERENCES

INCENTIVESCHOICES

choices with no consequences for decision maker

choices with consequences for decision maker

CHOICE EXPERIMENT

any situation in which a decision maker is asked to rank/choose from 2/more alternatives

Background differences in real vs hypothetical choices

hypothetical bias in hypothetical experiment

STUDY REALITY IN THE EXPERIMENTAL LAB

respondent bear some real consequence from making the decision

DIFFERENT EXPERIMENT FRAMING

MONEY MAKE PEOPLE MORE RISK-ADVERSE

RICH MAKE PEOPLE MORE RISK-ADVERSE?

RISKY CHOICES / GAMBLE

the effect of actually playing gambles was to make subjects more risk-averse

Holt & Laurypayoff scale effect

RANDOMIZATION TASK1 EXPLANATIONDISTRIBUTION TASK 1 COLLECTION

TASK2 EXPLANATIONCOLLECTION

PAYMENT?

R groupinstruction paper 1Rmoney envelope

S groupinstruction paper 1S

R grouppaper 1R + envelope

S grouppaper 1S

DISTRIBUTION TASK 2

bag & numbers slides 1

S groupinstruction paper 2S

R groupinstruction paper 2Renvelope

slides 2

S grouppaper 2S

R grouppaper 2R + envelope

COLLECT RESIDUAL MONEY

HORCE RACE

video

last slide

RANDOM.ORG

link

last slide

COLLECT RESIDUAL MONEY R group

Marina

Anne MarieClara

Anne MarieMoney

Clarainstructions

Marina

Clara

Anne Marie

Clara

Marina

Clarainstructions

Anne Mariemoney

Anne Marie

Marina

Clara

Anne Marie

Clara

ResultsRICH GROUP vs SPARE GROUP

63,33$

49,77$

0$

10$

20$

30$

40$

50$

60$

70$

Spare$Group$ Rich$Group$

Means&Mean average bet for the group calculated in both tasks

p-value 0,268

ResultsBOX PLOTS

RH 1 SH 1 RH 2 SH 2

ResultsBOX PLOTS

RH 1 SH 1 RH 2 SH 2

0

20

40

60

80

100

April JuneJuly

greater difference in average in TASK 2

ResultsTASK 1 vs TASK 2

48,48$

65,22$

0$

10$

20$

30$

40$

50$

60$

70$

Task$1$ Task$2$

Means&

Mean average bet for the task calculated in both groups

p-value 0,117

47,71%

66,82%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Female% Male%

Means&

ResultsFEMALE vs MALE

Mean average bet for the group calculated in both tasks

p-value 0,0725

SIGNIFICANT AT 10%

Discussionour data

‣ tell us that the pattern of bets is sufficiently variable ‣ don’t tell us if there is or not a true effect

If there were a TRUE EFFECT, we would need a larger size sample (N≥23) in order to detect it.

Definitive conclusions can not be taken from our sample

Further research

Is the behavior in RH settings similar to

behavior in real situation?

– Anne Marie, Claralinda & Marina

Thank you for your attention!

If you have any question we are here :)