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Experimental Assessment of Utility Functions Induced by Fixed and Uncertain Targets

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  • Maximilian Zellner

    (University of Southern California, Los Angeles, California 90089)

  • Ali E. Abbas

    (University of Southern California, Los Angeles, California 90089)

Abstract

This paper presents the results of four lottery-type experiments that investigate the effects of incentive structures on decision-making under uncertainty. We compare choices made with and without incentives, with fixed targets, with binary targets, and with four-outcome targets that are discretized from a logistic distribution. The results of the behavioral experiments (i) validate theoretical findings of utility functions induced by fixed and uncertain targets. Further, the behavioral results show that (ii) individuals’ choices are indeed affected by incentive structures, which we quantify by several deviation measures. (iii) Defined consistency measures show that choices under uncertain targets become less consistent as the number of uncertain target outcomes increases. The results of these experiments provide insights into the effects of setting incentive structures on decision-making behavior.

Suggested Citation

  • Maximilian Zellner & Ali E. Abbas, 2023. "Experimental Assessment of Utility Functions Induced by Fixed and Uncertain Targets," Decision Analysis, INFORMS, vol. 20(3), pages 187-201, September.
    • Handle: RePEc:inm:ordeca:v:20:y:2023:i:3:p:187-201
    DOI: 10.1287/deca.2023.0470
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    References listed on IDEAS

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