Abstract
Since Holt and Laury (Am Econ Rev 92(5):1644–1655, 2002), the multiple price list (MPL) procedure has widely been used to elicit individual risk preferences. We assess the impact of varying list order and spacing, and of presentation via text or graphs. Relative to the original MPL baseline, some non-linear transformations of lottery prices systematically increase elicited risk aversion, while some graphical displays tend to reduce it.
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Notes
Please see Sect. 4 for an alternative view on this hypothesis.
Camerer (1989) offers a similar conjecture, but does not elaborate or test it. In his experiment, expected values are proportional to displayed areas, while in our experiment, they are proportional to the volumes of the 3-d pies.
Why is the gap in mean s between MPLe and, say, MPLa so much larger than the corresponding gap in r? We see two reasons. First, the 8 MPLe trials excluded for r exhibit higher mean values of s than the other trials. Second, the convex transform behind MPLe compresses the range of the \(\hat{r}\)’s, artificially lowering the mean (and standard deviation) of r in Table 2.
Power tests collected in online Appendix A suggest that, given the observed means and standard deviations in sequence I, a sample twice as large as ours would suffice to reject the null hypothesis at the 5% level in 90% of samples for the TF and FF treatments, but it would take a sample about ten times as large to do so for the FT and TT treatments.
Some readers might be surprised that in the prize dimension, our data suggest, if anything, ambiguity seeking and not ambiguity aversion. A literature search turned up only two previous studies, Eichberger et al. (2011) and Eliaz and Ortoleva (2011), that dealt with ambiguity in prizes. The latter study focused on correlations between prize ambiguity and the usual probability ambiguity. Eichberger et al. (2011) finds ambiguity aversion in prizes, but to a lesser degree than for ambiguity in probabilities.
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Acknowledgements
We are grateful for support from the National Science Foundation under Grant SES-1357867. As usual, the NSF played no role in the design of our study, nor in the collection, analysis, and interpretation of data, nor in the writing of the report, nor in the decision to submit the article for publication. We also thank Tobias Schmidt for a helpful pointer to the previous literature, and two reviewers, and an editor of this journal for very helpful comments and suggestions.
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Habib, S., Friedman, D., Crockett, S. et al. Payoff and presentation modulation of elicited risk preferences in MPLs. J Econ Sci Assoc 3, 183–194 (2017). https://doi.org/10.1007/s40881-016-0032-8
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DOI: https://doi.org/10.1007/s40881-016-0032-8