The Binary Lottery Procedure does not induce risk neutrality in the Holt and Laury and Eckel and Grossman tasks

Oliver Kirchkamp and Jörg Oechssler and Andis Sofianos

We test whether the binary lottery procedure makes subjects behave as if they are risk neutral in the Holt and Laury (2002) and Eckel and Grossman (2002) tasks. Depending on the task we find that less than haft of the participants behave as if risk neutral. In fact, when we compare the distribution of choices we find no significant difference to standard experiments lab that did not use the binary lottery procedure. Using a structural model we find modest evidence that the binary lottery procedure might move subjects at least slightly towards risk neutrality.

JEL: C91, C 81.

Keywords: risk elicitation, binary lottery procedure; experimental economics.

• Here is the most recent version of the working paper as of 23. 2. 2021.
• Data and methods. The ZIP file contains raw data for our own experiments. The file contains the raw data also for some of the studies with which we compare our results. For the remaining studies the file contains the prepared data (essentially only the choices related to risk) and the commands we used to derive from the raw data for these studies our prepared data. The file also contains all commands needed to translate the prepared data into the results.
• On 27 February 2021, the paper has been accepted for publication by the Journal of Economic Behavior and Organization, Vol. 185, pp. 348-369.

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