October, 2013

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

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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) 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 using low-stakes. In particular, we induce preferences such that decisions in a low-stakes environment 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.

Find article at Science Direct.