Probabilities vs. Money: A Test of Some Fundamental Assumptions About Rational Decision Making. Graham Loomes, Department of Economics, University of Newcastle, Newcastle NE1 7RU, and Centre for Experimental Economics, University of York, York YO1 5DD
This paper describes an experiment where respondents were asked to tackle two decision tasks which were very similar in structure, but which differed in that one problem involved direct money payoffs while the other involved payoffs in the form of probabilities of winning a given sum of money. According to most decision models, most risk averse individuals might be expected to behave quite differently under the two conditions. But the behaviour actually observed does not accord with this expectation. The paper discusses possible reasons for this and the potential implications of such findings.
The experiment reported here was part of a project called The Consistency or Inconsistency of Preferences Under Risk and Over Time, funded by award L122 25 1024 under the ESRCs Economic Beliefs and Behaviour Programme.