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 at most a third of subjects behave as if risk neutral. In fact, when we compare the distribution of choices we find no significant difference to earlier experiments in the same 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.