External Seminar

By Theo Offerman - University of Amsterdam

Abstract: We investigate the effect of high incentives on behavior in the Allais paradox by varying the size of the incentive and whether payoffs are hypothetical or real. In the treatment with real high incentives, participants can earn up to 5 times the median monthly wage. We find two main results. First, in line with the Allais paradox, increasing real incentives leads to more violations of Expected Utility: The difference in the percentage of “safe” choices across the two lottery sets increases substantially with high incentives. Second, choices with high real incentives are better approximated by high hypothetical than by low real incentives.

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