This paper attempts to empirically assess how advice may reduce suboptimality in a portfolio choice experiment with risk-neutral participants induced via binary-lottery incentives. Previous studies with a larger set of choice tasks report overwhelming evidence of suboptimality and how it is slightly reduced by learning and experience. Participants confront 15 randomly ordered portfolio choices, which they experience again in 2 successive phases. Intermediate advice between phases alerts participants that less-risky investments can improve the outcome for at least one chance event (...) without harming their success chances in the other random event. Compared to the pure choice treatment, another cognitively more demanding treatment additionally asks participants to form event-specific success aspirations that allow us to test satisficing and its optimality. The results show that intermediate advice increases the share of satisficing but not of optimal behavior beyond learning through experience. However, it significantly lowers the average distance from optimality. (shrink)

An experiment is reported which tests for positive confirmation bias in a setting in which individuals choose what information to buy, prior to making a decision. The design – an adaptation of Wason's selection task – reveals the use that subjects make of information after buying it. Strong evidence of positive confirmation bias, in both information acquisition and information use, is found; and this bias is found to be robust to experience. It is suggested that the bias results from a (...) pattern of reasoning which, although producing sub-optimal decisions, is internally coherent and which is self-reinforcing. (shrink)

In experimental economics one can confront a “don’t!”, as in “do not deceive your participants!”, as well as a “do!”, as in “incentivize choice making!”. Neither exists in experimental psychology. Further controversies exist in data collection methods, e.g., play strategy (vector) method in game experiments, and how to guarantee external and internal validity by describing experimental scenarios by field-related vignettes or by abstract, often formal, rules as it is used in decision and game theory. We emphasize that differences between the (...) experimental methodology of the two disciplines are minor rather than substantial and suggest that such differences should be resolved, as much as possible, through empirical research. Rather than focusing on familiar debates, we suggest to substitute the revealed-motive approach in experimental economics by designs whose data not only inform about choice, but also about the reasoning dynamics. (shrink)

We implement a risky choice experiment based on one-dimensional choice variables and risk neutrality induced via binary lottery incentives. Each participant confronts many parameter constellations with varying optimal payoffs. We assess optimality, as well as optimal satisficing by eliciting aspirations in addition to choices. Treatments differ in the probability that a binary random event, which are payoff—but not optimal choice—relevant is experimentally induced and whether participants choose portfolios directly or via satisficing, i.e., by forming aspirations and checking for satisficing before (...) making their choice. By incentivizing aspiration formation, we can test satisficing, and in cases of satisficing, determine whether it is optimal. (shrink)

Résumé L’article évoque les bases de la méthode expérimentale en général et son adaptation à l’étude des phénomènes économiques tout en rendant compte des réflexions philosophiques récentes sur la nature des expériences en laboratoire. Il recense par ailleurs les principales procédures expérimentales qui caractérisent la bonne pratique des économistes – dont certaines témoignent d’une grande ingéniosité – en pointant en parallèle ce qui la sépare de celle plus ancienne des psychologues. La question des incitations financières y fait l’objet d’une attention (...) toute particulière. L’article souligne les immenses progrès réalisés en quelques décennies comme le caractère très professionnel de la démarche expérimentale, sans pour autant occulter les désaccords qui persistent entre certains expérimentalistes et l’existence de quelques questions « ouvertes » d’importance. A cet égard, l’article tente de faire le point sur l’un des questionnements méthodologiques qui, bien que central dans un argumentaire de défense contre la critique courante du caractère « artificiel » des expériences, n’est vraiment abordé de manière sérieuse que depuis peu : le problème de la « validité externe » des résultats expérimentaux, i.e. leur capacité à être généralisés en dehors du laboratoire. (shrink)

The introduction of the euro gave a unique opportunity to empirically disentangle two components of utility: intrinsic value, a rational component central in economics, and the numerosity effect (going by numbers while ignoring units), a descriptive and irrational component central in prospect theory and underlying the money illusion. We measured relative risk aversion in Belgium before and after the introduction of the euro, and could consider changes in intrinsic value while keeping numbers constant, and changes in numbers while keeping intrinsic (...) value constant. Intrinsic value significantly affected risk aversion, and the numerosity effect did not. Our study is the first to confirm the classical hypothesis of increasing relative risk aversion while avoiding irrational distortions due to the numerosity effect. (shrink)