IMPLEMENTING AND TESTING RISK-PREFERENCE-INDUCTION MECHANISMS IN EXPERIMENTAL SEALED-BID AUCTIONS

Risk-preference-inducing lottery procedures can serve as valuable tool s for experimental economists. However, questioning their effectivenes s, experimenters may avoid them even when predictions and conclusions depend crucially on risk preferences. Here, I review risk-preference-i nduction attempts in sealed-bid auctions, discussing factors that prom ote or hinder success. Making the procedure very transparent and havin g subjects learn about it in simple environments promote success. Hyst eresis resulting from switching between monetary payoffs and lottery p rocedures in one environment hinders success. Thus, lottery procedures appear sensitive to the implementation. However, implemented carefull y, they can generate behavior consistent with the intended preferences .