Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/175875
Authors: 
Sürücü, Oktay
Brangewitz, Sonja
Djawadi, Behnud Mir
Year of Publication: 
2017
Series/Report no.: 
Center for Mathematical Economics Working Papers 574
Abstract: 
The asymmetric dominance effect refers to the phenomenon according to which the choice probability of an alternative increases when an inferior alternative - the decoy - is included into the choice set. The objective of this experimental study is twofold. First, we investigate the asymmetric dominance effect on two-outcome lotteries with almost equal expected values. We find that the impact of a decoy on low-variance lotteries (LVLs) is much higher than on high-variance lotteries (HVLs). Second, we examine the asymmetric dominance effect in the presence of two decoys. While the asymmetric dominance effect persists when the choice set includes two decoys, the effect is not always further enhanced compared to the setting with one decoy and again much stronger for LVLs than for HVLs. Controlling for subjects' degrees of risk aversion, we find support for consistency between individual risk preferences and choice behavior among the lotteries. However, we observe decoy effects of equal strength irrespective of the subjects' degree of risk aversion. Thus, our analysis indicates that to a substantial extent the presence of decoys subtly makes decision-makers choose against their risk preferences by favoring lotteries that entail risks contrary to their elicited individual risk-taking profile.
Subjects: 
Asymmetric dominance effect
decoy effects
multiple decoys
risk aversion
individual decision making
experimental economics
JEL: 
C91
D12
D83
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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