Chapter 111 Payoff Scale Effects and Risk Preference Under Real and Hypothetical Conditions

The use of monetary incentives may not affect behavior much in some contexts, or it may simply reduce the dispersion of data around some theoretical prediction. But the experiments indicate that incentive effects may be large and systematic in other contexts. In the absence of a widely accepted theory of when incentives matter, it is probably not advisable to derive scientific conclusions from laboratory studies that do not provide clear, salient motivation. The evidence surveyed here shows that relying on hypothetical payments can yield misleading results in some circumstances. Moreover, social scientists do not have a good feel for when to believe hypothetical choice patterns. Given this, they believe that performance-based incentives should be used in economics experiments, and results motivated by hypothetical incentives should be interpreted with caution.