Hypothetical and Real Consequences in Experimental Auctions for Insurance against Low Probability Risks

Behavioral Decision Making, Vol. 5, 107-116, 1992

11 Pages Posted: 13 May 2009

See all articles by Gary McClelland

Gary McClelland

University of Colorado at Boulder - Department of Psychology

William D. Schulze

Cornell University - Department of Economics

Julie R. Irwin

University of Texas - McCombs School of Business

Date Written: July 25, 1992

Abstract

Laboratory experiments have provided useful information about how people behave in risky siluations. In particular, such experiments have allowed for the observation of many deviations from the predictions of expected utility theory. There is some dispute, however, over the effect ofthe use of real versus hypothetical money in these experiments and over the Impact of experience. In this paper we describe auction experiments in which subjects faced a low-probability risk with either hypothetical or real-money consequences and varying amounts of experience. Using hypothetical payoffs resulted in behavior that provides a reasonable qualitative prediction of behavior with real consequences, but that seems to indicate a less diligent attitude toward spending the money as well as less concern about the risk.

Suggested Citation

McClelland, Gary and Schulze, William D. and Irwin, Julie R., Hypothetical and Real Consequences in Experimental Auctions for Insurance against Low Probability Risks (July 25, 1992). Behavioral Decision Making, Vol. 5, 107-116, 1992, Available at SSRN: https://ssrn.com/abstract=1349305

Gary McClelland

University of Colorado at Boulder - Department of Psychology ( email )

Boulder, 80309
United States

William D. Schulze

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-9611 (Phone)
607-255-9984 (Fax)

Julie R. Irwin (Contact Author)

University of Texas - McCombs School of Business ( email )

Business,Government and Society Department
Austin, TX 78712
United States

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