Experimental evidence on the effect of incentives and domain in risk aversion and discounting tasks

Environmental policy evaluation is often criticised for employing discount rates that have little grounding in research. Yet, experimental research aimed at eliciting realistic rates will inevitably require strong assumptions of external validity, while also placing large cognitive demands on subjects by processing tasks of increased unfamiliarity. We use a controlled lab experiment to test the impact of incentives on risk aversion and discounting tasks for monetary and environmental goods. We find that, on average, incentives have little effect on risk aversion or discounting tasks in either domain. Exploring heterogeneity by treatment and socio-demographics some significant patterns emerge. Further, contrary to past work, we find evidence of domain (monetary vs. environmental good) effects in both risk and discounting.

Automated summary

Environmental policy evaluation often faces criticism for using discount rates without sufficient research support. Experimental research to obtain realistic discount rates may require strong assumptions of external validity and impose cognitive demands on subjects. Results show that incentives have minimal impact on risk aversion and discounting tasks, with significant patterns emerging in heterogeneity by treatment and socio-demographics. Furthermore, evidence of domain effects (monetary vs. environmental goods) in both risk and discounting contradicts previous findings.