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The Medium Prizes Paradox: Evidence from a Simulated Casino

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  • Haruvy, Ernan
  • Erev, Ido
  • Sonsino, Doron
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    Abstract

    Mainstream explanations to gambling specify conditions under which human agents are locally risk loving. Such theories, however, fail to explain the typically observed prize distribution of a few large prizes and a large number of medium ones--hence the medium prizes paradox. In the current study we show that adaptive learning models recently proposed in the literature offer a solution. Simulations of such models predict that multiple medium prizes will slow down the decrease (over time) in agents' inclination to gamble. We run a laboratory experiment that supports this explanation and shows that the positive effect of medium prizes on the inclination to gamble increases with time. Copyright 2001 by Kluwer Academic Publishers

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    Bibliographic Info

    Article provided by Springer in its journal Journal of Risk and Uncertainty.

    Volume (Year): 22 (2001)
    Issue (Month): 3 (May)
    Pages: 251-61

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    Handle: RePEc:kap:jrisku:v:22:y:2001:i:3:p:251-61

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    Web page: http://www.springerlink.com/link.asp?id=100299

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    Cited by:
    1. Hau, Robin & Hertwig, Ralph & Roth, Alvin E. & Stewart, Terrence & West, Robert & Lebiere, Christian & Erev, Ido & Ert, Eyal & Haruvy, Ernan & Herzog, Stefan, 2009. "A Choice Prediction Competition: Choices From Experience and From Description," Scholarly Articles 5343169, Harvard University Department of Economics.
    2. Oyarzun, Carlos & Sarin, Rajiv, 2012. "Mean and variance responsive learning," Games and Economic Behavior, Elsevier, vol. 75(2), pages 855-866.
    3. Peel, D.A., 2013. "Heterogeneous agents and the implications of the Markowitz model of utility for multi-prize lottery tickets," Economics Letters, Elsevier, vol. 119(3), pages 264-267.
    4. Per Binde, 2005. "Gambling Across Cultures: Mapping Worldwide Occurrence and Learning from Ethnographic Comparison," International Gambling Studies, Taylor & Francis Journals, vol. 5(1), pages 1-27, June.
    5. Ido Erev & Ira Glozman & Ralph Hertwig, 2008. "What impacts the impact of rare events," Journal of Risk and Uncertainty, Springer, vol. 36(2), pages 153-177, April.

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