Pay One or Pay All: Random Selection of One Choice for Payment

It has become increasingly common in economics experiments to elicit a series of choices from participants, and then pay for only one, selected at random, after all have been made. This allows the researcher to observe a large number of individual decisions, and to increase payoffs for each decision since only one of them will be used for payment. It has not been demonstrated, however, whether subjects behave as if each of these choices involves the stated payoffs, or if subjects scale-down payoffs to account for the random selection that is made. This paper reports an experiment that tests this directly. In an environment where payoff scale effects have been demonstrated to matter, three treatments are conducted: pay for one of 10 choices under low payoffs, pay for all 10 choices under low payoffs, and pay for 1 of 10 choices under 10x the low payoff level. Increasing payoff scale has a significant effect on choices compared with the low payoff treatments where all 10 decisions are paid, or where one decision is paid. However, there is no significant difference in choices between paying for one or all 10 decisions at the low payoff level. This supports the validity of using the random-choice payment method.

The Impact of Insurance Prices on Decision-Making Biases: An Experimental Analysis

This paper tests whether the use of endogenous risk categorization by insurers enables consumers to make better-informed decisions even if they do not choose to purchase insurance. We do so by adding a simple insurance market to an experimental test of optimal (Bayesian) updating. In some sessions, no insurance is offered. In others, actuarially fair insurance prices are posted, and a subset of subjects is allowed to purchase this insurance. We find significant differences in the decision rules used depending on whether or not one observes insurance prices. Although the majority of choices correspond to Bayesian updating, the incidence of optimal decisions is higher in sessions with an insurance option. Most subjects given the option to purchase actuarially fair insurance choose to do so, however fewer subjects purchase insurance when the probability of a loss is higher. Working Paper 06-1

Risk Aversion and Incentive Effects

A menu of paired lottery choices is structured so that the crossover point to the high-risk lottery can be used to infer the degree of risk aversion. With "normal" laboratory payoffs of several dollars, most subjects are risk averse and few are risk loving. Scaling up all payoffs by factors of twenty, fifty, and ninety makes little difference when the high payoffs are hypothetical. In contrast, subjects become sharply more risk averse when the high payoffs are actually paid in cash. A hybrid "power/expo" utility function with increasing relative and decreasing absolute risk aversion nicely replicates the data patterns over this range of payoffs from several dollars to several hundred dollars

Further Reflections on Prospect Theory

This paper reports a new experimental test of prospect theoryâ??s reflection effect. We conduct a sequence of experiments that allow us to directly compare choices under reflected gains and losses where real and hypothetical payoffs range from several dollars to over $100. Lotteries with positive payoffs are transformed into lotteries over losses by reflecting all payoffs around zero. When we use hypothetical payments, more than half of the subjects who are risk averse for gains turn out to be risk seeking for losses. This "reflection effect" is diminished considerably with cash payoffs, where the modal choice pattern is to exhibit risk aversion for both gains and losses. However, we do observe a significant difference in risk attitudes between losses (where most subjects are approximately risk neutral) and gains (where most subjects are risk averse). Reflection rates are further reduced when payoffs are scaled up by a factor of 15 (for both real and hypothetical payoffs).

Investor Relations on the Internet: A Survey of the Euronext Zone

This study investigates the investor relations activities on the Internet of companies listed on the Euronext stock exchange. For this purpose, the homepages of the 50 largest listed companies in each of the countries Belgium, France and the Netherlands were searched and screened for investor relations items. Results obtained by using a three stages model show that most companies in the Euronext zone are in the second stage of Internet investorrelations. In this stage, information available through other sources is combined to better inform investors. In the third stage companies use the full interactive possibilities of the Internet for investor relations purposes. French and Dutch companies use the Internet for investor relations purposes more widely and more intensely than do Belgian companies. The study also revealed a size effect; large companies use the Internet for investor relations purposes more extensively than do smaller companies. This conclusion holds for each of the three countries. The leading companies in France and the Netherlands are either in the third stage of Internet investor relations or they are ready to enter it.accounting and auditing ;