Seminar Team AVA 13/07/2023

Fabrice Le lec (Lille Economics and Management - UMR CNRS 9221) will give a seminar (room A4.312) :

An experimental investigation of preventive behavior (F. Le lec / V. Lenglin / J. Santos)

Preventive behavior, defined as the action taken by an agent, at a cost, to reduce the probability of an adverse consequence, is one manner to deal with uncertainty. Yet, despite the fact that it permeates all aspect of economic life, it has never been systematically studied in the controlled environment of the lab.
We propose to do so by first clarifying the theoretical predictions regarding `prevention in the small'' in various theoretical frameworks (expected utility, rank-dependent EU, prospect theory), and second to test experimentally these predictions. More specifically, we study the the cost (born in all states of nature) that makes the decision-maker indifferent with a fixed change of the probability of the adverse consequence.
At the theoretical level, we show that under expected utility, the intensity of prevention action decreases with the probability of the adverse consequence, while for rank-dependent expected utility and prospect theory, the main determinant of prevention is the derivative of the probability weighting function, leading to a U shape form of prevention. Experimentally, but only based on preliminary results, we find, under four treatments (Risk/Ambiguity crossed over Gains / Losses) and two variations of stake levels that the second set of predictions is much more accurate than the standard expected utility implications. We also observe some differences between gains and losses, but very little between risk and ambiguity.
In conclusion, our results suggest that prevention is mostly driven by the shape of the probability weighting function, a result that seemed to have been overlooked in the litterature, that has mostly focused on the curvature of the utility function.