Risk Preferences and Contract Choices

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04 Mars 2020
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Cahier de recherche
Jean-Louis Bago
Bruce Shearer
Axe de recherche: 
Enjeux économiques et financiers
Risk preferences
Field experiments
Classification JEL: 

We conducted a series of field experiments to investigate the ability of experimentally measured risk preferences to predict the contractual choices of workers in the real labour market. In a first set of experiments we measured workers’ risk preferences using the lottery approach of Holt and Laury (2002). We did this twice: once for low-stakes lotteries (LSL) and once for high-stakes (HSL). Each worker subsequently made 12 decisions, choosing between his/her regular piece-rate contract and a series of fixed wage contracts, each offereing a different fixed wage. One of the twelve decisions was then chosen at random and the worker was paid according to his/her choice for that decision over a period of two working days. The risk preferences measured from the HSL effectively predict the contract choices; those from the LSL are irrelevant. We also find that high-ability workers prefer piece-rate contracts.


Jean-Louis Bago : Department of Economics, Université Laval.
Bruce Shearer : Department of Economics, Université Laval. CRREP, CIRANO and IZA.

We thank Sylvain Dessy, Claude-Denis Fluet, Bernard Fortin, Sonia Laszlo, and Luca Tiberti for helpful comments and suggestions. We also thank participants at the Canadian Economic Association Meetings (McGill, 2018) and the Societé canadienne des sciences économiques (Ottawa, 2017). Financial support from SSHRC (Shearer), FRQSC (Shearer) and CRREP (Bago) is gratefully acknowledged.