Multiple switching behaviour in multiple price lists

Abstract

A common mechanism to elicit risk preferences requires a respondent to make a series of dichotomous choices. A recurring problem with this mechanism is a frequently observed tendency to switch from the less to the more risky choice multiple times, multiple switching behaviour. We introduce an instructional variation which our evidence suggests practically eliminates such behaviour. We read a script emphasizing only one decision will determine earnings before providing written instructions. Emphasizing the incentive compatibility of the payment rule reduces observed multiple switching behaviour from 13.3% to 2.3% in one format and from 25.8% to 6.7% in another.