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  • 1.
    Andersen, Steffen
    et al.
    Department of Finance, Copenhagen Business School, Copenhagen, Denmark .
    Cox, James C.
    Department of Economics and Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, USA.
    Harrison, Glenn W.
    Department of Risk Management & Insurance and Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, USA .
    Lau, Morten I.
    Department of Economics, Copenhagen Business School, Copenhagen, Denmark.
    Rutström, Elisabet
    Örebro University, Örebro University School of Business. Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, USA; Department of Economics, Stockholm School of Economics, Stockholm, Sweden.
    Sadiraj, Vjollca
    Department of Economics and Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, USA.
    Asset Integration and Attitudes toward Risk: Theory and Evidence2018In: Review of Economics and Statistics, ISSN 0034-6535, E-ISSN 1530-9142, Vol. 100, no 5, p. 816-830Article in journal (Refereed)
    Abstract [en]

    We provide evidence that choices over small stakes bets are consistent with assumptions of some payoff calibration paradoxes. We then exploit the existence of detailed information on individual wealth of our experimental subjects in Denmark, and directly estimate risk attitudes and the degree of asset integration. We discover that behavior is consistent with partial, rather than full, asset integration. The implied risk attitudes from estimating these specifications indicate risk premia and certainty equivalents that are a priori plausible. This theory and evidence suggest one constructive solution to payoff calibration paradoxes.

  • 2.
    Andersen, Steffen
    et al.
    Copenhagen Business School, Copenhagen, Denmark.
    Cox, James
    Department of Economics, Andrew Young School of Policy Studies, Georgia State University, Atlanta, USA.
    Harrison, Glenn W.
    Department of Risk Management and Insurance, J. Mack Robinson College of Business, Georgia State University, Atlanta, USA.
    Lau, Morten I.
    Copenhagen Business School, Copenhagen, Denmark.
    Rutström, Elisabet
    Department of Economics, Andrew Young School of Policy Studies, Georgia State University, Atlanta, USA.
    Sadiraj, Vjollca
    Department of Economics, Andrew Young School of Policy Studies, Georgia State University, Atlanta, USA.
    Asset Integration and Attitudes to Risk: Theory and Evidence2017Report (Other academic)
    Abstract [en]

    Measures of risk attitudes derived from experiments are often questioned because they are based on small stakes bets and do not account for the extent to which the decision-maker integrates the prizes of the experimental tasks with personal wealth. We exploit the existence of detailed information on individual wealth of experimental subjects in Denmark, and directly estimate risk attitudes and the degree of asset integration consistent with observed behavior. The behavior of the adult Danes in our experiment is consistent with partial asset integration: they behave as if some fraction of personal wealth is combined with experimental prizes in a utility function, and that this combination entails less than perfect substitution. Our subjects do not perfectly asset integrate. The implied risk attitudes from estimating these specifications imply risk premia and certainty equivalents that are a priori plausible under expected utility theory or rank dependent utility models. These are reassuring and constructive solutions to payoff calibration paradoxes. In addition, the rigorous, structural modeling of partial asset integration points to a rich array of neglected questions in risk management and policy evaluation in important field settings.

  • 3.
    Andersen, Steffen
    et al.
    Department of Economics, Copenhagen Business School, Copenhagen, Denmark.
    Dixit, Vinayak K.
    University of New South Wales, Sydney, Australia.
    Martínez-Correa, Jimmy
    Department of Economics, Copenhagen Business School, Copenhagen, Denmark.
    Rutström, Elisabet
    Georgia State University, Atlanta Georgia, USA.
    When the Field Is Not Enough: Using Complementary Field and Lab Experiments to Investigate Congestion Pricing Responses2014Report (Other academic)
    Abstract [en]

    We use data from a field experiment collecting route choices using GPS recorders and a lab experiment eliciting risk attitude characteristics of drivers. We find that drivers behave in predicted ways in response to variations in average travel times, and in response to manipulations of route pricing. Demand functions are downward sloping in tolls and in travel times. We do not find that drivers respond to variations in the unreliability of travel times, but this is not due to their risk attitudes. Almost all drivers are risk averse, and express a revealed preference in favor of the relatively safe route that is increasing in risk aversion. Because the alternate routes are located at some distance apart, we suspect that the lack of response to travel time unreliability is to be found in biases in drivers expectations of unreliability.

  • 4.
    Andersen, Steffen
    et al.
    Department of Economics, Copenhagen Business School, Copenhagen, Denmark.
    Fountain, John
    Department of Economics, University of Canterbury, Christchurch, New Zealand.
    Harrison, Glenn W.
    Department of Risk Management and Insurance, Center for the Economic Analysis of Risk, Georgia State University, Atlanta GA, United States.
    Hole, Arne Risa
    Department of Economics, University of Sheffield, Sheffield, United Kingdom.
    Rutström, Elisabet
    Department of Economics, Andrew Young School of Policy Studies, Georgia State University, Atlanta GA, United States.
    Inferring beliefs as subjectively imprecise probabilities2012In: Theory and Decision, ISSN 0040-5833, E-ISSN 1573-7187, Vol. 73, no 1, p. 161-184Article in journal (Refereed)
    Abstract [en]

    We propose a method for estimating subjective beliefs, viewed as a subjective probability distribution. The key insight is to characterize beliefs as a parameter to be estimated from observed choices in a well-defined experimental task and to estimate that parameter as a random coefficient. The experimental task consists of a series of standard lottery choices in which the subject is assumed to use conventional risk attitudes to select one lottery or the other and then a series of betting choices in which the subject is presented with a range of bookies offering odds on the outcome of some event that the subject has a belief over. Knowledge of the risk attitudes of subjects conditions the inferences about subjective beliefs. Maximum simulated likelihood methods are used to estimate a structural model in which subjects employ subjective beliefs to make bets. We present evidence that some subjective probabilities are indeed best characterized as probability distributions with non-zero variance.

  • 5.
    Andersen, Steffen
    et al.
    Department of Economics, Copenhagen Business School, Copenhagen, Denmark.
    Fountain, John
    CEAR, Robinson College of Business, Georgia State University, Atlanta GA, United States.
    Harrison, Glenn W.
    Department of Risk Management and Insurance and CEAR, Robinson College of Business, Georgia State University, Atlanta GA, United States; Center for the Economic Analysis of Risk, J. Mack Robinson College of Business, Georgia State University, Atlanta GA, United States.
    Rutström, Elisabet
    Department of Economics, Andrew Young School of Policy Studies, Dean's Behavioral Economics Laboratory, Robinson College of Business, Georgia State University, Atlanta GA, United States.
    Estimating subjective probabilities2014In: Journal of Risk and Uncertainty, ISSN 0895-5646, E-ISSN 1573-0476, Vol. 48, no 3, p. 207-229Article in journal (Refereed)
    Abstract [en]

    Subjective probabilities play a central role in many economic decisions and act as an immediate confound of inferences about behavior, unless controlled for. Several procedures to recover subjective probabilities have been proposed, but in order to recover the correct latent probability one must either construct elicitation mechanisms that control for risk aversion, or construct elicitation mechanisms which undertake "calibrating adjustments" to elicited reports. We illustrate how the joint estimation of risk attitudes and subjective probabilities can provide the calibration adjustments that theory calls for. We illustrate this approach using data from a controlled experiment with real monetary consequences to the subjects. This allows the observer to make inferences about the latent subjective probability, under virtually any well-specified model of choice under subjective risk, while still employing relatively simple elicitation mechanisms.

  • 6.
    Andersen, Steffen
    et al.
    Department of Economics, Copenhagen Business School, Copenhagen, Denmark.
    Harrison, Glenn W.
    Department of Risk Management and Insurance and CEAR, Robinson College of Business, Georgia State University, Atlanta GA, United States.
    Hole, Arne Risa
    Department of Economics, University of Sheffield, Sheffield, United Kingdom.
    Lau, Morten I.
    Durham Business School, Durham University, Durham, United Kingdom.
    Rutström, Elisabet
    Department of Economics, Andrew Young School of Policy Studies, Georgia State University, Atlanta GA, United States.
    Non-linear mixed logit2012In: Theory and Decision, ISSN 0040-5833, E-ISSN 1573-7187, Vol. 73, no 1, p. 77-96Article in journal (Refereed)
    Abstract [en]

    We develop an extension of the familiar linear mixed logit model to allow for the direct estimation of parametric non-linear functions defined over structural parameters. Classic applications include the estimation of coefficients of utility functions to characterize risk attitudes and discounting functions to characterize impatience. There are several unexpected benefits of this extension, apart from the ability to directly estimate structural parameters of theoretical interest.

  • 7.
    Andersen, Steffen
    et al.
    Department of Economics, Copenhagen Business School, Copenhagen, Denmark.
    Harrison, Glenn. W.
    Department of Risk Management & Insurance and Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, United States.
    Lau, Morten I.
    Department of Economics, Copenhagen Business School, Copenhagen, Denmark; Durham University Business School, Durham University, UK.
    Rutström, Elisabet
    Dean's Behavioral Economics Laboratory, Robinson College of Business and Andrew Young School of Policy Studies, Georgia State University, United States.
    Discounting behavior: A reconsideration2014In: European Economic Review, ISSN 0014-2921, E-ISSN 1873-572X, Vol. 71, p. 15-33Article in journal (Refereed)
    Abstract [en]

    We re-evaluate the theory, experimental design and econometrics behind claims that individuals exhibit non-constant discounting behavior. Theory points to the importance of controlling for the non-linearity of the utility function of individuals, since the discount rate is defined over time-dated utility flows and not flows of money. It also points to a menagerie of functional forms to characterize different types of non-constant discounting behavior. The implied experimental design calls for individuals to undertake several tasks to allow us to identify these models, and to several treatments such as multiple horizons and the effect of allowing for a front end delay on earlier payments. The implied econometrics calls for structural estimation of th`e theoretical models, allowing for joint estimation of utility functions and discounting functions. Using data collected from a representative sample of 413 adult Danes in 2009, we draw surprising conclusions. Assuming an exponential discounting model we estimate discount rates to be 9% on average. We find no evidence to support quasi-hyperbolic discounting or "fixed cost" discounting, and only modest evidence to support other specifications of non-constant discounting. Furthermore, the evidence for non-constant discounting, while statistically significant, is not economically significant in terms of the size of the estimated discount rates. We undertake extensive robustness checks on these findings, including a detailed review of the previous, comparable literature.

  • 8.
    Andersen, Steffen
    et al.
    Copenhagen Business School, Copenhagen, Denmark.
    Harrison, Glenn W.
    Georgia State University, Atlanta, United States.
    Lau, Morten I.
    Copenhagen Business School, Copenhagen, Denmark; Durham University Business School, Durham, UK.
    Rutström, Elisabet
    Georgia State University, Atlanta, United States.
    Discounting behaviour and the magnitude effect: Evidence from a field experiment in Denmark2013In: Economica, ISSN 0013-0427, E-ISSN 1468-0335, Vol. 80, no 320, p. 670-697Article in journal (Refereed)
    Abstract [en]

    We evaluate the claim that individuals exhibit a magnitude effect in their discounting behaviour, where higher discount rates are inferred from choices made with lower principals, all else being equal. If the magnitude effect is quantitatively significant, it is not appropriate to use one discount rate that is independent of the scale of the project for cost-benefit analysis and capital budgeting. Using data from a field experiment in Denmark, we find statistically significant evidence of a magnitude effect that is much smaller than is claimed. This evidence surfaces only if one controls for unobserved individual heterogeneity in the population.

  • 9.
    Andersen, Steffen
    et al.
    Department of Economics, Copenhagen Business School, Copenhagen, Denmark.
    Harrison, Glenn W.
    Department of Risk Management & Insurance and Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, United States.
    Lau, Morten I.
    Department of Economics, Copenhagen Business School, Copenhagen, Denmark; Durham University Business School, Durham University, United Kingdom.
    Rutström, Elisabet
    Robinson College of Business, Georgia State University, United States.
    Dual criteria decisions2014In: Journal of Economic Psychology, ISSN 0167-4870, E-ISSN 1872-7719, Vol. 41, p. 101-113Article in journal (Refereed)
    Abstract [en]

    The most popular models of decision making use a single criterion to evaluate projects or lotteries. However, decision makers may actually consider multiple criteria when evaluating projects. We consider a dual criteria model from psychology. This model integrates the familiar tradeoffs between risk and utility that economists traditionally assume, allowance for rank-dependent decision weights, and consideration of income thresholds. We examine the issues involved in full maximum likelihood estimation of the model using observed choice data. We propose a general method for integrating the multiple criteria, using the logic of mixture models, which we believe is attractive from a decision-theoretic and statistical perspective. The model is applied to observed choices from a major natural experiment involving intrinsically dynamic choices over highly skewed outcomes. The evidence points to the clear role that income thresholds play in such decision making, but does not rule out a role for tradeoffs between risk and utility or probability weighting.

  • 10.
    Andersen, Steffen
    et al.
    Copenhagen Business School, Copenhagen, Denmark.
    Harrison, Glenn W.
    Georgia State University, Atlanta, United States; University of Cape Town, Cape Town, South Africa.
    Lau, Morten I.
    Copenhagen Business School, Copenhagen, Denmark; Durham University, Durham, United Kingdom.
    Rutström, Elisabet
    Georgia State University, Atlanta, United States; Stockholm School of Economics, Stockholm, Sweden; University of Cape Town, Cape Town, South Africa.
    Multiattribute Utility Theory, Intertemporal Utility, and Correlation Aversion2018In: International Economic Review, ISSN 0020-6598, E-ISSN 1468-2354, Vol. 59, no 2, p. 537-555Article in journal (Refereed)
    Abstract [en]

    Convenient assumptions about qualitative properties of the intertemporal utility function have generated counterintuitive implications for the relationship between atemporal risk aversion and the intertemporal elasticity of substitution. If the intertemporal utility function is additively separable, then the latter two concepts are the inverse of each other. We review a theoretical specification with a long lineage in the literature on multi-attribute utility and use this theoretical structure to guide the design of a series of experiments that allow us to identify and estimate intertemporal correlation aversion. Our results show that subjects are correlation averse over lotteries with intertemporal income profiles.

  • 11.
    Andersen, Steffen
    et al.
    Copenhagen Business School, Copenhagen, Denmark.
    Harrison, Glenn W.
    Georgia State University, Atlanta, United States.
    Lau, Morten L.
    Rutström, Elisabet
    Georgia State University, Atlanta, United States.
    Risk aversion in game shows2008In: Research in Experimental Economics, ISSN 0193-2306, E-ISSN 1875-7537, Vol. 12, p. 359-404Article in journal (Refereed)
    Abstract [en]

    We review the use of behavior from television game shows to infer risk attitudes. These shows provide evidence when contestants are making decisions over very large stakes, and in a replicated, structured way. Inferences are generally confounded by the subjective assessment of skill in some games, and the dynamic nature of the task in most games. We consider the game shows Card Sharks, Jeopardy!, Lingo, and finally Deal Or No Deal. We provide a detailed case study of the analyses of Deal Or No Deal, since it is suitable for inference about risk attitudes and has attracted considerable attention.

  • 12.
    Chakravarty, Sujoy
    et al.
    Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Mehrauli Road, New Delhi, India.
    Harrison, Glenn W.
    Department of Risk Management and Insurance and Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, Atlanta GA, United States.
    Haruvy, Ernan E.
    Department of Marketing, School of Management, University of Texas, Richardson TX, United States.
    Rutström, Elisabet
    Robinson College of Business and Department of Economics, Andrew Young School of Policy Studies, Georgia State University, Atlanta GA, United States.
    Are you risk averse over other people's money?2011In: Southern Economic Journal, ISSN 0038-4038, E-ISSN 2325-8012, Vol. 77, no 4, p. 901-913Article in journal (Refereed)
    Abstract [en]

    Decisions with uncertain outcomes are often made by one party in settings where another party bears the consequences. Whenever an individual is delegated to make decisions that affect others, such as in the typical corporate structure, does the individual make decisions that reflect the risk preferences of the party bearing the consequences? We examine this question in two simple settings, lottery choices and sealed-bid auctions, using controlled laboratory experiments, We find that when an individual makes a decision for an anonymous stranger, there is a tendency to exhibit less risk aversion. This reduction in risk aversion is relative to his or her own preferences, and it is also relative to his or her belief about the preferences of others. This result has significant implications for the design of contracts between principals and agents.

  • 13.
    Coller, Maribeth
    et al.
    Asset Management Group, United States.
    Harrison, Glenn W.
    Department of Risk Management and Insurance and CEAR, Robinson College of Business, Georgia State University, Atlanta GA, United States.
    Rutström, Elisabet
    Robinson College of Business and Department of Economics, Andrew Young School of Policy Studies, Georgia State University, United States.
    Latent process heterogeneity in discounting behavior2012In: Oxford Economic Papers, ISSN 0030-7653, E-ISSN 1464-3812, Vol. 64, no 2, p. 375-391, article id gpr019Article in journal (Refereed)
    Abstract [en]

    We show that observed choices in discounting experiments are consistent with roughly one-half of the subjects using exponential discounting and one-half using quasi-hyperbolic discounting. We characterize the latent data generating process using a mixture model which allows different subjects to behave consistently with each model. Our results have substantive implications for the assumptions made about discounting behavior, and also have significant methodological implications for the manner in which we evaluate alternative models when there may be complementary data generating processes.

  • 14.
    Dixit, Vinayak V.
    et al.
    Louisiana State University, Baton Rouge, LA, USA.
    Harb, Rami C.
    University of Central Florida, Orlando, FL, USA.
    Harrison, Glenn W.
    Georgia State University, Atlanta, GA, USA.
    Marco, Donald M.
    University of Central Florida, Orlando, FL, USA.
    Mard, M. Seph
    Georgia State University, Atlanta, GA, USA.
    Radwan, A. Essam
    University of Central Florida, Orlando, FL, USA.
    Rutström, Elisabet
    Georgia State University, Atlanta, GA, USA.
    Schneider, Mark P.
    Georgia State University, Atlanta, GA, USA.
    Review of Congestion Pricing Experiences2010Report (Other academic)
  • 15.
    Dixit, Vinayak V.
    et al.
    University of New South Wales (UNSW) Australia, Research Centre for Integrated Transport Innovation, Sydney, Australia.
    Harb, Rami C.
    Atkins North America, Denver, United States.
    Martínez-Correa, Jimmy
    Applied Microeconomics, Copenhagen Business School, Department of Economics, Copenhagen, Denmark.
    Rutström, Elisabet
    Georgia State University, Atlanta, USA.
    Measuring Risk Aversion to Guide Policy: Naturalistic Tasks and Respondents2013Conference paper (Refereed)
    Abstract [en]

    When measuring risk attitudes for use in policy analysis it is important to recognize that the context may matter. We propose a method that goes beyond simple context framing using text and pictures and instead relies on Virtual Reality simulations. Such simulations have been shown to improve the accuracy of perceptions in experimental context. We ask whether elicited risk preferences differ when using simulations or stylized lottery tasks, and compare students (a low cost convenient subject pool) to field subjects. While we see initial differences across our 2x2 treatment design, we find that they converge with repetition.

  • 16.
    Dixit, Vinayak. V.
    et al.
    Research Centre for Integrated Transport Innovation (rCITI), School of Civil and Environmental Engineering, University of New South Wales, Australia.
    Harb, Rami. C.
    Atkins North America, Denver, United States.
    Martínez-Correa, Jimmy
    Applied Microeconomics, Copenhagen Business School, Department of Economics, Denmark.
    Rutström, Elisabet
    Dean's Behavioral Economics Laboratory, J. Mack Robinson College of Business, Department of Economics, Andrew Young School of Policy Studies, Georgia State University, United States; Department of Economics, University of Cape Town, South Africa.
    Measuring risk aversion to guide transportation policy: Contexts, incentives, and respondents2015In: Transportation Research Part A: Policy and Practice, ISSN 0965-8564, E-ISSN 1879-2375, Vol. 80, p. 15-34Article in journal (Refereed)
    Abstract [en]

    Road pricing may provide a solution to increasing traffic congestion in metropolitan areas. Route, departure time and travel mode choices depend on risk attitudes as commuters perceive the options as having uncertain effects on travel times. We propose that Experimental Economics methods can deliver data that uses real consequences and where the context can be varied by the researcher. The approach relies on the controlled manipulation of contexts, similar to what is done in the Stated Choice approach, but builds in actual consequences, similar to the Revealed Preference approach. This paper investigates some of the trade-offs between the cost of conducting Experimental Economics studies and the behavioral responses elicited. In particular, we compare responses to traditional lottery choice tasks to the route choice tasks in simulated driving environments. We also compare students (a low cost convenient participant pool) to field participants recruited from the driving population. While we see initial differences across our treatment groups, we find that their risk taking behavior converge with minimal repetition.

  • 17.
    Dixit, Vinayak V.
    et al.
    School of Civil and Environmental Engineering, University of New South Wales, Sydney, Australia.
    Harrison, Glenn. W.
    Department of Risk Management and Insurance, Robinson College of Business, Georgia State University, United States.
    Rutström, Elisabet
    Dean’s Behavioral Economics Lab, Robinson College of Business and Department of Economics, Andrew Young School of Policy Studies, Georgia State University, USA.
    Estimating the subjective risks of driving simulator accidents2014In: Accident Analysis and Prevention, ISSN 0001-4575, E-ISSN 1879-2057, Vol. 62, p. 63-78Article in journal (Refereed)
    Abstract [en]

    We examine the subjective risks of driving behavior using a controlled virtual reality experiment. Use of a driving simulator allows us to observe choices over risky alternatives that are presented to the individual in a naturalistic manner, with many of the cues one would find in the field. However, the use of a simulator allows us the type of controls one expects from a laboratory environment. The subject was tasked with making a left-hand turn into incoming traffic, and the experimenter controlled the headways of oncoming traffic. Subjects were rewarded for making a successful turn, and lost income if they crashed. The experimental design provided opportunities for subjects to develop subjective beliefs about when it would be safe to turn, and it also elicited their attitudes towards risk. A simple structural model explains behavior, and showed evidence of heterogeneity in both the subjective beliefs that subjects formed and their risk attitudes. We find that subjective beliefs change with experience in the task and the driver's skill. A significant difference was observed in the perceived probability to successfully turn among the inexperienced drivers who did and did not crash even though there was no significant difference in drivers' risk attitudes among the two groups. We use experimental economics to design controlled, incentive compatible tasks that provide an opportunity to evaluate the impact on driver safety of subject's subjective beliefs about when it would be safe to turn as well as their attitudes towards risk. This method could be used to help insurance companies determine risk premia associated with risk attitudes or beliefs of crashing, to better incentivize safe driving.

  • 18.
    Dixit, Vinayak V.
    et al.
    School of Civil and Environmental Engineering, University of New South Wales, Sydney, Australia.
    Ortmann, Andreas
    Australian School of Business, University of New South Wales, Sydney, Australia.
    Rutström, Elisabet
    Örebro University, Örebro University School of Business. Center for Economic Analysis, Georgia State University, Atlanta, United States; University of Cape Town, Cape Town, South Africa.
    Ukkusuri, Satish V.
    School of Civil and Environmental Engineering at Purdue University, West Lafayette, United States.
    Experimental Economics and choice in transportation: Incentives and context2017In: Transportation Research Part C: Emerging Technologies, ISSN 0968-090X, E-ISSN 1879-2359, Vol. 77, p. 161-184Article in journal (Refereed)
    Abstract [en]

    This paper reviews the preconditions for successful applications of Experimental Economics methods to research on transportation problems, as new transportation and research technologies emerge. We argue that the application of properly designed incentives, the hallmark of Experimental Economics, provides a high degree of experimental control, leading to internal validity and incentive compatibility. Both of these are essential for ensuring that findings generalize to contexts outside the immediate application. New technologies, such as virtual reality simulators, can generate external validity for the experiments by providing realistic contexts. GPS and other tracking technologies, as well as smart phones, smart cards and connected vehicle technologies can allow detailed observations on actions and real-time interactions with drivers in field experiments. Proper application of these new technologies in research requires an understanding of how to maintain a high level of internal validity and incentive compatibility as external validity is increased. In this review of past applications of Experimental Economics to transportation we focus on their success in achieving external and internal validity.

  • 19.
    George, J. Greg
    et al.
    School of Business and the Center for Economic Analysis, Middle Georgia State College, Macon, GA, USA.
    Harisson, Glenn W.
    Department of Risk Management & Insurance, Robinson College of Business and Center for the Economic Analysis of Risk, Georgia State University, Atlanta, GA, USA.
    Rutström, Elisabet
    Dean’s Behavioral Economics Lab, Robinson College of Business and Department of Economics, Andrew Young School of Policy Studies, Georgia State University, Atlanta, GA, USA.
    Behavioral Responses towards Risk Mitigation: An Experiment with Wild Fire Risks2015Report (Other academic)
    Abstract [en]

    What are the behavioral effects of voluntary self-protection in situations where the probabilities are unknown to the agent? Virtually all naturally occurring environments of risk management involve subjective probabilities, and many allow decision makers to voluntarily mitigate risk using self-protection activities. To examine this environment we design a laboratory experiment in which incomplete information about probabilities is generated in a naturalistic way from the perspective of decision makers, but where the experimenter has complete information. Specifically, we use virtual simulations of property that is at risk of destruction from simulated wild fires. Using direct belief elicitation mechanisms we find that subjective beliefs over high and low risk scenarios underestimate the shift. Thus, predictions of voluntary self-protection activities based on such data would estimate a suboptimal willingness to invest. However, when offering subjects’ self-protection opportunities, their choices indicate that they over-estimate the risk reducing effects and would in fact be willing to pay more than if they knew the objective probabilities. These findings have direct implications for the normative evaluation of risk management policies when risk perception is subjective.

  • 20.
    George, J. Gregory
    et al.
    Macon State College, GA, United States.
    Johnson, Laurie T.
    University of Denver, CO, United States.
    Rutström, Elisabet
    University of Central Florida, FL, United States.
    Social preferences in the face of regulatory change2007In: Environmental Economics, Experimental Methods / [ed] Todd L. Cherry, Stephan Kroll and Jason F. Shogren, London: Routledge, 2007, Vol. 8, p. 293-306Chapter in book (Refereed)
    Abstract [en]

    Economic analyses of regulatory solutions to social dilemmas focus more often on the efficiency than on the distributional consequences. In this chapter, we show that individuals hold both reciprocal and distributional preferences over alternative regulatory solutions to social dilemmas in a laboratory experiment. Increased attention concerning distributional consequences may therefore be called for.

  • 21. Harb, Rami C.
    et al.
    Rutström, Elisabet
    Georgia State University, Atlanta GA, USA.
    Xanthopoulos, Petros
    Putting Your Money Where Your Mouth Is: Do Drivers Who Avoid Roads That Are Priced Favor Road Pricing?2015Report (Other academic)
  • 22.
    Harisson, Glenn W.
    et al.
    Georgia State University, Atlanta GA, USA.
    Lau, Morten I.
    Copenhagen Business School, Copenhagen, Denmark.
    Rutström, Elisabet
    Georgia State University, Atlanta GA, USA.
    Theory, Experimental Design and Econometrics Are Complementary (And So Are Lab and Field Experiments)2010Report (Other academic)
    Abstract [en]

    Experiments are conducted with various purposes in mind including theory testing, mechanism design and measurement of individual characteristics. In each case a careful researcher is constrained in the experimental design by prior considerations imposed either by theory, common sense or past results. We argue that the integration of the design with these elements needs to be taken even further. We view all these elements that make up the body of research methodology in experimental economics as mutually dependant and therefore take a systematic approach to the design of our experimental research program. Rather than drawing inferences from individual experiments or theories as if they were independent constructs, and then using the findings from one to attack the other, we recognize the need to constrain the inferences from one by the inferences from the other. Any data generated by an experiment needs to be interpreted jointly with considerations from theory, common sense, complementary data, econometric methods and expected applications. We illustrate this systematic approach by reference to a research program centered on large artefactual field experiments we have conducted in Denmark. An important contribution that grew out of our work is the complementarity between lab and field experiments.

  • 23.
    Harrison, Glenn W.
    et al.
    Department of Risk Management and Insurance, Center for Economic Analysis of Risk, Georgia State University, Atlanta GA, United States.
    Haruvy, Ernan E.
    School of Management, University of Texas at Dallas, Richardson TX, United States.
    Rutström, Elisabet
    Robinson College of Business and Department of Economics, Andrew Young Sc hool of Policy Studies, Georgia State University, Atlanta GA, USA.
    Remarks on virtual world and virtual reality experiments2011In: Southern Economic Journal, ISSN 0038-4038, E-ISSN 2325-8012, Vol. 78, no 1, p. 87-94Article in journal (Refereed)
    Abstract [en]

    In recent years there has been increased behavioral research in virtual reality and virtual worlds. While these experiments could offer substantial advantages to researchers, they might also pose risks. We begin by identifying key concepts in virtual experimental research. Then we review the critical virtual reality component of virtual worlds. Finally, we offer guidance in conducting virtual world research.

  • 24.
    Harrison, Glenn W.
    et al.
    University of Western Ontario, London, Canada.
    Hoffman, Elizabeth
    Purdue University, West Lafayette IN, USA; University of Wyoming, Laramie WY, USA.
    Rutström, Elisabet
    Stockholm School of Economics, Stockholm, Sweden.
    Spitzer, Matthew L.
    University of Southern California, Los Angeles, USA.
    Coasian Solutions to the Externality Problem in Experimental Markets1987In: Economic Journal, ISSN 0013-0133, E-ISSN 1468-0297, Vol. 97, no 386, p. 388-402Article in journal (Refereed)
  • 25.
    Harrison, Glenn W.
    et al.
    Department of Economics, College of Business Administration, University of Central Florida, Orlando FL, United States.
    Johnson, Eric
    Department of Economics, Moore School of Business, University of South Carolina, Columbia SC, United States.
    McInnes, Melayne M.
    Department of Economics, Moore School of Business, University of South Carolina, Columbia SC, United States.
    Rutström, Elisabet
    Department of Economics, College of Business Administration, University of Central Florida, Orlando FL, United States.
    Risk aversion and incentive effects: Comment2005In: The American Economic Review, ISSN 0002-8282, E-ISSN 1944-7981, Vol. 95, no 3, p. 897-901Article in journal (Refereed)
  • 26.
    Harrison, Glenn W.
    et al.
    Department of Risk Management & Insurance and Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, Atlanta, GA, USA.
    Johnson, Jared M.
    Google, USA .
    Rutström, Elisabet
    Dean’s Behavioral Economics Lab, Robinson College of Business and Department of Economics, Young School of Policy Studies, Georgia State University, Atlanta, GA, USA .
    Risk Perceptions in the Virtual Wilderness2015Report (Other academic)
    Abstract [en]

    In economic decision making most probabilities are formed in a compound manner through the interaction of multiple attributes of events, each of which have likelihoods that are unknown to various degrees. We consider how subjectively formed risk perceptions are affected by the dispersion of the underlying objective, compound probability distribution. Our methodology relies on virtual reality simulations of physical cues of the risk, allowing us to bring together the natural stimuli of the field and the control of the lab. Our application is an important example of a risk with serious economic consequences: the management of wild fire risk. This is an important natural setting where the risk is compound, depending on many random physical processes and where the formation of risk perceptions necessary for risk management is therefore complex. We find that increasing the dispersion of the underlying objective risk leads to higher subjective probabilities of the worst outcome occurring, consistent with increased pessimism. We compare the risk perceptions of experts in this domain with non-expert residents that are affected by the risk, and conclude that experts are not always better than non-experts at estimating the risks. Experts appear to be locked in by their strong priors based on stimuli outside those presented in our naturalistic virtual reality. With a global environment that produces increasingly extreme phenomena, training experts to be less anchored on their prior experiences will become important.

  • 27.
    Harrison, Glenn W.
    et al.
    Department of Risk Management & Insurance and Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, Atlanta, GA, USA.
    Lau, Morten I.
    Durham University Business School, Durham University, Durham, UK.
    Rutström, Elisabet
    Robinson College of Business, Georgia State University, Atlanta, GA, USA.
    Identifying Time Preferences With Experiments: Comment2013Report (Other academic)
    Abstract [en]

    Identifying time preferences with laboratory experiments demands attention to theoretical, experimental and econometrics issues. Andreoni and Sprenger [2012a] propose a single choice task and several econometric methods that seek to address these issues. The choice task requires subjects to make portfolio allocations between sooner and later payments of money. All theories they examine imply that subjects pick one boundary or the other, or that they pick strictly interior allocations. Their econometric methods seek to explain the average portfolio choice, but ignore the bald fact that 70% of the responses by the subjects were choices at one boundary allocation or the other. The average portfolio choice implied by the modes at either boundary is chosen by virtually none of their subjects. Their ad hoc econometric attempts to model the truncation of choices at the boundaries fail to account for the economics of the observed behavior. A systematic analysis of their data generates a priori implausible estimates of significantly convex utility functions. Andreoni and Sprenger [2012b] inherits all of the problems of the basic design and econometrics from Andreoni and Sprenger [2012a], and adds one: their findings are immediately confounded by non-additivity of the intertemporal utility function. Apart from this theoretical confound, there is experimental evidence of just this type of non-additivity, leading to an aversion to correlated payoffs over time. The evidence in favor of correlation aversion predicts the qualitative pattern they observe perfectly, without claiming that the utility function for stochastic outcomes is somehow different from the utility function for non-stochastic outcomes.

  • 28.
    Harrison, Glenn W.
    et al.
    Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, Atlanta GA, USA.
    Lau, Morten I.
    Copenhagen Business School, Copenhagen, Denmark.
    Rutström, Elisabet
    Dean's Behavioral Economics Laboratory, Robinson College of Business, and Andew Young School of Policy Studies, Georgia State University, Atlanta GA, USA.
    Theory, Experimental Design, and Econometrics Are Complementary (And So Are Lab and Field Experiments)2015In: Handbook of Experimental Economic Methodology / [ed] Guillaume R. Fréchette and Andrew Schotter, New York: Oxford University Press, 2015, p. 296-338Chapter in book (Refereed)
    Abstract [en]

    This chapter proposes a systematic approach to research where theory, lab results, common sense, field data, and econometrics are all integrated into one’s research toolkit. The approach is illustrated by considering work done on an artifactual field experiment in Denmark. The chapter is organized into four sections. The section entitled “Policy Lotteries” introduces the concept of policy lotteries, giving a few examples. The section entitled “Risk Aversion” discusses how to draw inferences about risk attitudes using the systematic approach that includes conditioning these inferences on smaller-scale lab experiments, on sample selection effects and elicitation methods, on econometric and statistical strategies such as sampling frame and structural estimation approaches, and on theoretical and common sense considerations about out-of-domain predictions. The section entitled “Discount Rates” discusses inferences about discount rates and demonstrate the power of joint estimation of risk and time preferences as motivated by theory. The section entitled “Lessons Learned” expands the joint inference discussion to longitudinal issues such as temporal stability.

  • 29.
    Harrison, Glenn W.
    et al.
    Department of Risk Management and Insurance, Robinson School of Business, Georgia State University, Center for the Economic Analysis of Risk, United States.
    Lau, Morten I.
    Department of Accounting and Finance, Durham University, Durham, United Kingdom.
    Rutström, Elisabet
    Dean's Behavioral Economics Laboratory, Robinson School of Business, and Department of Economics, Andrew Young School of Policy Studies, Georgia State University, United States.
    Tarazona-Gómez, Marcela
    Faculty of Social Sciences, University of East Anglia, and Oxford Policy Management, United Kingdom.
    Preferences over social risk2013In: Oxford Economic Papers, ISSN 0030-7653, E-ISSN 1464-3812, Vol. 65, no 1, p. 25-46, article id gps021Article in journal (Refereed)
    Abstract [en]

    We elicit individual preferences over social risk. We identify the extent to which these preferences are correlated with preferences over individual risk and the well-being of others. We examine these preferences in the context of laboratory experiments over small, anonymous groups, although the methodological issues extend to larger groups that form endogenously (e.g., families, committees, communities). Preferences over social risk can be closely approximated by individual risk attitudes when subjects have no information about the risk preferences of other group members. We find no evidence that subjects systematically reveal different risk attitudes in a social setting with no prior knowledge about the risk preferences of others compared to when they solely bear the consequences of the decision. However, we also find that subjects are significantly more risk averse when they know the risk preferences of other group members.

  • 30.
    Harrison, Glenn W.
    et al.
    Department of Economics, College of Business Administration, University of Central Florida, Orlando FL, United States.
    Rutström, Elisabet
    Department of Economics, College of Business Administration, University of Central Florida, Orlando FL, United States.
    Eliciting subjective beliefs about mortality risk orderings2006In: Environmental and Resource Economics, ISSN 0924-6460, E-ISSN 1573-1502, Vol. 33, no 3, p. 325-346Article in journal (Refereed)
    Abstract [en]

    We develop an experimental method to elicit subjective beliefs about the ordering of mortality risk over different causes of death. The experimental procedure emphasizes incentive-compatibility, so that the individual has a positive financial incentive to respond truthfully. We also consider the extent to which individuals have subjective beliefs for sub-segments of the population that are more accurate than their beliefs about the risks for the population as a whole. We propose several hypotheses concerning the degree of familiarity of the risks, and find that the evidence supports those hypotheses. The evidence also suggests that there is no discernible difference between beliefs elicited using hypothetical or real financial rewards in the elicitation format we use. Our findings restore some confidence in the ability to elicit beliefs about mortality risks, and therefore to get reliable estimates of the monetary value of a statistical life.

  • 31. Harrison, Glenn. W.
    et al.
    Rutström, Elisabet
    University of Central Florida, Orlando Florida, United States .
    Risk aversion in the laboratory2008In: Research in Experimental Economics, ISSN 0193-2306, E-ISSN 1875-7537, Vol. 12, p. 41-196Article in journal (Refereed)
    Abstract [en]

    We review the experimental evidence on risk aversion in controlled laboratory settings. We review the strengths and weaknesses of alternative elicitation procedures, the strengths and weaknesses of alternative estimation procedures, and finally the effect of controlling for risk attitudes on inferences in experiments.

  • 32.
    Harrison, Glenn W.
    et al.
    University of South Carolina, Columbia SC, USA.
    Rutström, Elisabet
    University of South Carolina, Columbia SC, USA.
    Trade Wars, Trade Negotiations and Applied Game Theory1991In: Economic Journal, ISSN 0013-0133, E-ISSN 1468-0297, Vol. 101, no 406, p. 420-435Article in journal (Refereed)
    Abstract [en]

    The authors propose a methodological extension of quantitative "cost of protection" analyses to consider elementary game-theoretic aspects of the policy process. They illustrate these ideas by evaluating size propositions: nations can "win" trade wars; multilateral negotiations that "merely preserve the status quo" have some value; the terms of the U.S.-Canada free trade agreement can be strategically rationalized; threat points matter in trade negotiations; the negotiating practice of comparing the "value" of one country's concessions with another can dramatically influence bargaining outcomes; and that the substance of multilateral negotiations can be achieved by bilateral negotiations between the bigger countries.

  • 33.
    Rutström, Elisabet
    et al.
    Dean’s Behavioral Economics Lab, Robinson College of Business and Department of Economics, Young School of Policy Studies, Georgia State University, Atlanta GA, USA.
    Dixit, Vinayak V.
    University of New South Wales, Sydney, Australia.
    Harb, Rami C.
    Harrison, Glenn W.
    Department of Risk Management & Insurance and Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, Atlanta GA, USA.
    Radwan, A. Essam
    Handbook for conducting augmented randomized controlled trials for evidence based analysis of congestion pricing proposals2014Report (Other academic)
  • 34.
    Van Boening, Mark
    et al.
    Department of Economics, University of Mississippi, University MS, United States.
    Blackstone, Tanja F.
    Navy Personnel Research, Studies and Technology, Millington TN, United States.
    McKee, Michael
    College of Business, University of Tennessee, Knoxville TN, United States.
    Rutström, Elisabet
    Department of Economics, College of Business, University of Central Florida, Orlando FL, United States.
    Benefit packages and individual behavior: Choices over discrete goods with multiple attributes2006In: Managerial and Decision Economics, ISSN 0143-6570, E-ISSN 1099-1468, Vol. 27, no 6, p. 511-526Article in journal (Refereed)
    Abstract [en]

    Managers and employers use an array of rewards to attract and retain quality employees. An increasingly significant component of the overall compensation is the employee's benefits package. Flexible packages offer more choice but also incur higher decision costs. We conduct an experiment on choices over stylized benefits packages where discrete 'goods' have multiple attributes affecting the payoff function. We investigate the degree to which these complications affect choices. Eighty subjects play an individual-choice decision-cost game where they are implicitly asked to solve a complex programming problem. Our main results are that: (a) individual subjects respond to the relative tradeoff between the attributes, (b) some combinations of the attributes (apparently) entice subjects to search more and thus earn more, and (c) most subjects appear to adopt a heuristic that approximates the optimal solution. Further, subjects appear to value the right to make choices, as they rarely choose a fixed payoff option with a known payoff and low decision cost, even when the fixed payoff is 80% of the maximum possible under the decision-making task.

1 - 34 of 34
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