High Stakes Behavior with Low Payoffs: Inducing Preferences with Holt-Laury Gambles by

Abstract

Kahneman and Tversky (1979) argued that risky decisions in high stakes environments can be informed using questionnaires with hypothetical choices. Yet results by Holt and Laury (2002) and Harrison et al (2005) suggest that questionnaire responses and decisions in hypothetical and low monetary payoff environments do not well predict decisions in higher monetary payoff environments. This raises the question of whether investigating decision making in high stakes environments requires using high stakes. Here we show that one can induce preferences using the binary-lottery reward technique (e.g., Berg et al., 1986) in order to study high-stakes decision making with low-stakes. In particular, we induce preferences such that decisions in a low-stakes environments reflect well the choices made in the high stakes environment of Holt and Laury (2002). This finding is of interest to anyone interested in studying high-stakes decision behavior without paying high stakes. * Economics and Accounting, Chapman University, One University Drive, Orange, CA 92866, USA † Interdisciplinary Center for Economic Science, George Mason University, 3330 Washington Blvd., Arlington, VA 22201, USA ‡ Corresponding Author: Interdisciplinary Center for Economic Science, George Mason University, 3330 Washington Blvd., Arlington, VA 22201, USA (Email: jaimone1@gmu.edu; Telephone: 703.993.4850; Fax 703.993.4851) § Economics, University of New York Tirana, Rruga Komuna e Parisit, Tirana, Albania ** Department of Economics, The University of Arizona, McClelland Hall 401, PO Box 210108, Tucson, AZ 857210108, USA 1 High Stakes Behavior with Low Payoffs: Inducing Preferences with Holt-Laury Gambles

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@inproceedings{Dickhaut2008HighSB, title={High Stakes Behavior with Low Payoffs: Inducing Preferences with Holt-Laury Gambles by}, author={John Dickhaut and Daniel Houser and Jason A. Aimone and Dorina Tila and Cathleen Johnson}, year={2008} }