Random Incentive Systems in a Dynamic Choice Experiment
32 Pages Posted: 9 Apr 2008 Last revised: 27 Jul 2012
Date Written: October 17, 2011
Experiments frequently use a random incentive system (RIS), where only tasks that are randomly selected at the end of the experiment are for real. The most common type pays every subject one out of her multiple tasks (within-subjects randomization). Recently, another type has become popular, where a subset of subjects is randomly selected, and only these subjects receive one real payment (between-subjects randomization). In earlier tests with simple, static tasks, RISs performed well. The present study investigates RISs in a more complex, dynamic choice experiment. We find that between-subjects randomization reduces risk aversion. While within-subjects randomization delivers unbiased measurements of risk aversion, it does not eliminate carry-over effects from previous tasks. Both types generate an increase in subjects’ error rates. These results suggest that caution is warranted when applying RISs to more complex and dynamic tasks.
Keywords: random incentive system, incentives, experimental measurement, risky choice, risk aversion, dynamic choice, tremble, within-subjects design, between-subjects design
JEL Classification: C91, D81
Suggested Citation: Suggested Citation