Asymmetrically Dominated Choice Problems, the Isolation Hypothesis and Random Incentive Mechanisms

Cox, James C., Sadiraj, Vjollca and Schmidt, Ulrich (2014) Asymmetrically Dominated Choice Problems, the Isolation Hypothesis and Random Incentive Mechanisms PLoS ONE, 9 (3).

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Abstract

This paper presents an experimental study of the random incentive mechanisms which are a standard procedure in economic and psychological experiments. Random incentive mechanisms have several advantages but are incentive-compatible only if responses to the single tasks are independent. This is true if either the independence axiom of expected utility theory or the isolation hypothesis of prospect theory holds. We present a simple test of this in the context of choice under risk. In the baseline (one task) treatment we observe risk behavior in a given choice problem. We show that by integrating a second, asymmetrically dominated choice problem in a random incentive mechanism risk behavior can be manipulated systematically. This implies that the isolation hypothesis is violated and the random incentive mechanism does not elicit true preferences in our example.

Document Type: Article
Additional Information: Times Cited: 1 0 1
Research affiliation: Kiel University
OceanRep > The Future Ocean - Cluster of Excellence
Refereed: Yes
ISSN: 1932-6203
Projects: Future Ocean
Date Deposited: 30 Mar 2015 12:05
Last Modified: 01 Mar 2018 10:50
URI: http://eprints.uni-kiel.de/id/eprint/27243

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