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

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  • Ronald J. Baker
  • Susan K. Laury
  • Arlington W. Williams

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 individual‐group‐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.

Suggested Citation

  • Ronald J. Baker & Susan K. Laury & Arlington W. Williams, 2008. "Comparing Small‐Group and Individual Behavior in Lottery‐Choice Experiments," Southern Economic Journal, John Wiley & Sons, vol. 75(2), pages 367-382, August.
    • Handle: RePEc:wly:soecon:v:75:y:2008:i:2:p:367-382
    DOI: 10.1002/j.2325-8012.2008.tb00909.x
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    References listed on IDEAS

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    1. Robert S. Shupp & Arlington W. Williams, 2008. "Risk preference differentials of small groups and individuals," Economic Journal, Royal Economic Society, vol. 118(525), pages 258-283, January.
    2. 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.
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    5. 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.
    6. Isaac, R Mark & James, Duncan, 2000. "Just Who Are You Calling Risk Averse?," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 177-187, March.
    7. Glenn W. Harrison & Eric Johnson & Melayne M. McInnes & E. Elisabet Rutström, 2005. "Risk Aversion and Incentive Effects: Comment," American Economic Review, American Economic Association, vol. 95(3), pages 897-901, June.
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    Cited by:

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    3. Cary Deck & Jungmin Lee & Javier Reyes & Chris Rosen, 2012. "Risk‐Taking Behavior: An Experimental Analysis of Individuals and Dyads," Southern Economic Journal, John Wiley & Sons, vol. 79(2), pages 277-299, October.
    4. Tibor Besedeš & Cary Deck & Sarah Quintanar & Sudipta Sarangi & Mikhail Shor, 2014. "Effort and Performance: What Distinguishes Interacting and Noninteracting Groups from Individuals?," Southern Economic Journal, John Wiley & Sons, vol. 81(2), pages 294-322, October.
    5. Sujoy Chakravarty & Glenn W. Harrison & Ernan E. Haruvy & E. Elisabet Rutström, 2011. "Are You Risk Averse over Other People's Money?," Southern Economic Journal, John Wiley & Sons, vol. 77(4), pages 901-913, April.
    6. Yoshio Kamijo & Teruyuki Tamura, 2023. "Risk-Averse and Self-Interested Shifts in Groups in Both Median and Random Rules," Games, MDPI, vol. 14(1), pages 1-21, February.
    7. Fukutomi, Masao & Ito, Nobuyuki & Mitani, Yohei, 2022. "How Group Size and Decision Rules Impact Risk Preferences: Comparing group and individual settings in lottery-choice experiments," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 98(C).
    8. Cavalcanti, Carina & Fleming, Christopher & Leibbrandt, Andreas, 2022. "Risk externalities and gender: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 51-64.

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