This program gives each participant
a task with a fixed number of "boxes", each of which contains a specified amount of cash, e.g. $1.
But an ink bomb has been randomly located in one of the boxes, and if that box is selected, the result is that
all cash is degraded so that the person earns nothing. If the bomb is not encountered, then the person's earnings equal the
sum of all cash contained in the boxes that were selected. The number of boxes selected is inversely related to a person's risk
aversion. The implied coefficients of constant
relative risk aversion are automatically
calculated for each decision and are reported on the summary results page.
This is commonly known as the BRET procedure.
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The experiment
can be used to instigate a class discussion of notions of risk neutrality and risk aversion.
In class experiments with hypothetical payoffs, participants
tend to be risk neutral or slightly risk averse. |
Vecon Lab - November 22, 2024 |