Vecon Lab Menu-Based Lottery Choice Experiment

This program provides a menu of lottery choices designed to evaluate choices between risky prospects when the probability of the higher payoff is varied in a systematic manner. For the default settings, variations in the probability of the higher payoff in each lottery can be used to make inferences about the degree of risk aversion. Paired choices are arrayed in order as the probability of the high payoff is incremented. (An alternative experiment that imposes less structure on the presentation of alternatives the "Pairwise Lottery Choice" program, which has an Allais paradox problem as the default.)

Individuals typically exhibit risk aversion, which increases sharply when the cash payoffs are scaled up. Payoff scale effects can be minimal when payoffs are hypothetical, as in a class experiment. The lottery choice menu setup is based on Holt and Laury, "Risk Aversion and Incentive Effects", AER, December 2002.

Vecon Lab - July 30, 2014