Abstract
The use of hypothetical instead of real decision-making incentives remains under debate after decades of economic experiments. Standard incentivized experiments involve substantial monetary costs due to participants’ earnings and often logistic costs as well.
In time preferences experiments, which involve future payments, real payments are particularly problematic. Since immediate rewards frequently have lower transaction costs than delayed rewards in experimental tasks, among other issues, (quasi) hyperbolic functional forms cannot be accurately estimated.
In risk preferences experiments using monetary incentives also create problems. The commonly used measure of Holt and Laury (2002) relies on a dozen lottery choices and payments, which make it time consuming and expensive. It also raises moral concerns because of the unequal payments generated by good and bad luck. Paying some but not all subjects may also create tensions between the researcher and subjects.
Besides, the dictator game offers a clean environment to test the reliability of hypothetical data (vs incentivized) since in the former subjects have incentive to show social preferences at no cost while in the later exhibition of generous behavior is costly.
What if hypothetical payments provide accurate data which, moreover, avoid transaction cost problems? In this paper, we test whether the use of hypothetical – versus real – payments affects the elicitation of time discounting, risk and social preferences. One-out-of-ten participants probabilistic payment schemes are also considered.
We analyze data from several studies: a lab experiment in Spain, a well-powered field experiment in Nigeria, a replication in Honduras, and an online extension focused on probabilistic payments and a replication in Prolific. Our results indicate that paid and hypothetical time preferences are mostly the same and, therefore, that hypothetical rewards are a good alternative to real rewards. However, our data suggest that probabilistic payments are not.
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