Financial incentives in economic experiments: a theoretical and empirical debate

Abstract

The use of financial incentives in experimental economics gained recognition from Smith's seminal work (1962; 1976). However, although this practice is widely adopted internationally, it is still little used in Brazil. Noticing such gap, the objective of this article is to evaluate the impact of the use of financial incentives in experiments in the area of economics and finance. To this end, a simulation of computational investment using ExpEcon was performed with 106 undergraduate students from UFSC. The objective was for them to perform stock purchase and sale operations and with this data it was possible to estimate the variables of the research: disposition coefficient, proportions of realized gains and realized losses. For the analysis, t-tests and multiple regression were estimated in order to assess the impact of financial incentives on the results. To support the discussion, in addition to the theoretical framework, National Health Council (CNS) resolutions No. 466 and No. 510 were discussed. The main results show that there is a need for clearer regulations regarding financial incentives. The results also brought empirical confirmation that financial incentives can alter the behavior of individuals as in the case of the disposition effect. Thus, the originality and importance of this study is highlighted, given that it contributes to the literature not only at the theoretical level, but also by presenting an empirical essay corroborating the theoretical discussion. Such findings and debates do not cease the discussion but foster and encourage critical thinking about financial incentives in experiments in the area.

The Changes of Risk Attitude Under Incentive Effect

“…Consequently, the experiment failed to explain the influence of different degrees of incentive on risk attitudes. Additionally, to verify the conclusion, it is necessary to conduct a large number of repeated experiments and take various characteristics of samples into account (Goulart et al, 2019).…”