Does Stake Size Matter? Testing for Differences in Involuntary Responses in High-Risk and Low-Risk Environments

Abstract

Using a laboratory experiment, we explore physiological responses to high and low-stakes to investigate how subjects react to risk and stake magnitude. Sub- jects are linked to devices measuring electrodermal activity and heart rate. Subjects are endowed with ten dollars and participate in a lottery that increases or decreases their earnings, with equal probability. There are two treatments: low stakes and high stakes. We find that heart rate is largely unaffected but skin conductance increases significantly once subjects are informed of the lottery, with the effect being larger in the high-stakes treatment. Being told the outcome of the lottery reduced skin conductance in both treatments, but not statistically significant. Our findings indicate that while stake size influences physiological arousal, the effects are modest. The results highlight the value of incorporating low-cost biometric measures into economic experiments and contribute to a better understanding of how risk shapes involuntary responses.