title: Asymmetrically dominated choice problems, the isolation hypothesis and random incentive mechanisms.
abstract: This paper presents an experimental study of the random incentive mechanisms which are a standard procedure in economic and psychological experiments. Random incentive mechanisms have several advantages but are incentive-compatible only if responses to the single tasks are independent. This is true if either the independence axiom of expected utility theory or the isolation hypothesis of prospect theory holds. We present a simple test of this in the context of choice under risk. In the baseline (one task) treatment we observe risk behavior in a given choice problem. We show that by integrating a second, asymmetrically dominated choice problem in a random incentive mechanism risk behavior can be manipulated systematically. This implies that the isolation hypothesis is violated and the random incentive mechanism does not elicit true preferences in our example.
authors.affiliation: Andrew Young School of Policy Studies, Georgia State University, Atlanta, Georgia, United States of America.
authors.forename: James C
authors.initials: JC
authors.lastname: Cox
authors.affiliation: Andrew Young School of Policy Studies, Georgia State University, Atlanta, Georgia, United States of America.
authors.forename: Vjollca
authors.initials: V
authors.lastname: Sadiraj
authors.affiliation: Kiel Institute for the World Economy, Kiel, Germany; Department of Economics, University of Kiel, Kiel, Germany.
authors.forename: Ulrich
authors.initials: U
authors.lastname: Schmidt
mesh_terms: D002755:Choice Behavior; D006801:Humans; D008962:Models, Theoretical; D009042:Motivation