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Experimental study investigates how prepayment position influences taxpayers' risk preferences, suggesting significant effects on decision-making.
The influence of prepayment position (payment due or a refund available) on tax- payers' preferences for risky filing options was investigated in an experimental study. The within-subjects experimental design was based on prospect theory. Experienced taxpayers completed three tax eases with differing prepayment positions and two non-tax cases. The taxpayers' choices evidenced preference reversals that violate axioms of expected utility theory. The taxpayers selected significantly riskier filing positions and reported less income in the payment-due case than in the refund case.
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Richard Dusenbury (1994) studied this question.
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