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Comparing Small-Group and Individual Behavior in Lottery-Choice Experiments

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  • Ronald J. Baker II

    ()
    (Department of Economics, Millersville University of Pennsylvania, P.O. Box 1002, Millersville, PA 17551, USA;)

  • Susan K. Laury

    ()
    (Andrew Young School of Policy Studies, Department of Economics, Georgia State University, P.O. Box 3992, Atlanta, GA 30302, USA)

  • Arlington W. Williams

    ()
    (Department of Economics, Indiana University, 100 S. Woodlawn, Wylie Hall Rm 105, Bloomington, IN 47405, USA)

Abstract

Lottery-choice experiments are conducted to compare risk preferences revealed by three-person groups versus isolated individuals. A lottery-choice experiment consists of a menu of paired lottery choices structured so that the crossover point from a low-risk to a high-risk lottery can be used to infer the degree of risk aversion. The data from a between-subjects experiment indicate that the difference in the average crossover point for groups versus individuals is not significant, but groups tend to make decisions that are more consistent with risk-neutral preferences in the lowest and highest risk lotteries. The data from a three-phase individualgroup- individual sequenced experiment indicate that groups choose significantly more low-risk lotteries than the mean choice of the individual group members. Also, making a phase 2 group decision influences the subsequent phase 3 individual decisions toward the group decision relative to the initial phase 1 (individual) decisions.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 75 (2008)
Issue (Month): 2 (October)
Pages: 367-382

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Handle: RePEc:sej:ancoec:v:75:2:y:2008:p:367-382

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  1. repec:hal:journl:halshs-00118973 is not listed on IDEAS
  2. repec:hal:cesptp:halshs-00118973 is not listed on IDEAS
  3. Robert S. Shupp & Arlington Williams, 2003. "Risk Preference Differentials of Small Groups and Individuals," Working Papers 200301, Ball State University, Department of Economics, revised Apr 2006.
  4. Charles A. Holt & Susan K. Laury, 2005. "Risk Aversion and Incentive Effects: New Data without Order Effects," American Economic Review, American Economic Association, vol. 95(3), pages 902-912, June.
  5. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  6. David Masclet & Youenn Loheac & Laurent Denant-Boemont & Nathalie Colombier, 2004. "Group and individual risk preferences : a lottery-choice experiment," Cahiers de la Maison des Sciences Economiques bla06063, Université Panthéon-Sorbonne (Paris 1), revised Sep 2006.
  7. Glenn W. Harrison & Eric Johnson & Melayne M. McInnes & E. Elisabet Rutstr�m, 2005. "Risk Aversion and Incentive Effects: Comment," American Economic Review, American Economic Association, vol. 95(3), pages 897-901, June.
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