Pay every subject or pay only some?

Measuring risk tolerance is of interest to policymakers given its importance in decision-making, and previous research has shown that the scale of payoffs influences elicited risk aversion levels. Sometimes budget-conscious researchers pay only some subjects for their decisions when eliciting risk p...

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Bibliographic Details
Published in:Journal of risk and uncertainty 2023-04, Vol.66 (2), p.161-188
Main Authors: Anderson, Lisa R., Freeborn, Beth A., McAlvanah, Patrick, Turscak, Andrew
Format: Article
Language:English
Subjects:
Decision making
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Environmental Economics
Expected values
Experimental methods
Experiments
Microeconomics
Operations Research/Decision Theory
Policy making
Research methodology
Risk
Risk aversion
Risk factors
Risk preferences
Tolerance
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Summary:Measuring risk tolerance is of interest to policymakers given its importance in decision-making, and previous research has shown that the scale of payoffs influences elicited risk aversion levels. Sometimes budget-conscious researchers pay only some subjects for their decisions when eliciting risk preferences, or pay smaller stakes to everyone. We test the effect of paying some versus paying all subjects in the context of risk preferences, controlling for the difference in stakes induced by paying only some subjects. Paying some subjects yields lower levels of risk aversion than paying everyone, but more risk aversion than paying all subjects lower stakes. Paying some subjects also impacts the ordering of subjects by elicited risk aversion. We estimate a simple structural model of latent risk aversion that derives a correction factor to approximate paying high stakes to all subjects. Paying some subjects high stakes meaningfully impacts the elicited level of risk aversion, but better approximates the condition of paying all subjects high stakes compared to paying everyone lower stakes.
ISSN:0895-5646
1573-0476
DOI:10.1007/s11166-022-09389-6