When a risky prospect is valued more than its best possible outcome
AbstractIn this paper, we document a violation of normative and descriptive models of decision making under risk. In contrast to uncertainty effects found by Gneezy, List and Wu (2006), some subjects in our experiments valued certain lotteries more than the best possible outcome. We show that the likelihood of observing this effect is positively related to the probability of winning the lottery and negatively related to the value of the maximum outcome. We also demonstrate that this effect can be partially attributed to subjects’ competitiveness and level of comprehension of the lottery mechanism; the competitiveness effects far outweighing comprehension effects.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Agricultural University of Athens, Department Of Agricultural Economics in its series Working Papers with number 2009-12.
Length: 14 pages
Date of creation: 2009
Date of revision:
lottery; risk; competitiveness; Vickrey auctions;
Other versions of this item:
- Andreas C. Drichoutis & Rodolfo M. Nayga & Jayson L. Lusk & Panagiotis Lazaridis, 2012. "When a risky prospect is valued more than its best possible outcome," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 7(1), pages 1-18, January.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-03 (All new papers)
- NEP-CBE-2009-10-03 (Cognitive & Behavioural Economics)
- NEP-EXP-2009-10-03 (Experimental Economics)
- NEP-UPT-2009-10-03 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Grether, David M. & Plott, Charles R., .
"Economic Theory of Choice and the Preference Reversal Phenomenon,"
152, California Institute of Technology, Division of the Humanities and Social Sciences.
- Grether, David M & Plott, Charles R, 1979. "Economic Theory of Choice and the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 69(4), pages 623-38, September.
- Gill, David & Stone, Rebecca, 2010.
"Fairness and desert in tournaments,"
Games and Economic Behavior,
Elsevier, vol. 69(2), pages 346-364, July.
- Gill, David & Stone, Rebecca, 2010. "Fairness and Desert in Tournaments," MPRA Paper 21322, University Library of Munich, Germany.
- Gill, David & Stone, Rebecca, 2009. "Fairness and desert in tournaments," Discussion Paper Series In Economics And Econometrics 0903, Economics Division, School of Social Sciences, University of Southampton.
- David Gill & Rebecca Stone, 2006. "Fairness and Desert in Tournaments," Economics Series Working Papers 279, University of Oxford, Department of Economics.
- Uri Gneezy & John List & George Wu, 2006.
"The uncertainty effect: When a risky prospect is valued less than its worst possible outcome,"
Framed Field Experiments
00152, The Field Experiments Website.
- Uri Gneezy & John A List & George Wu, 2006. "The Uncertainty Effect: When a Risky Prospect Is Valued Less Than Its Worst Possible Outcome," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1283-1309, November.
- Lusk,Jayson L. & Shogren,Jason F., 2007.
Cambridge University Press, number 9780521855167, October.
- Corrigan, Jay & Drichoutis, Andreas & Lusk, Jayson & Nayga, Rodolfo & Rousu, Matt, 2011.
"Repeated Rounds with Price Feedback in Experimental Auction Valuation: An Adversarial Collaboration,"
28337, University Library of Munich, Germany.
- Jay R. Corrigan & Andreas C. Drichoutis & Jayson L. Lusk & Rodolfo M. Nayga & Matthew C. Rousu, 2012. "Repeated Rounds with Price Feedback in Experimental Auction Valuation: An Adversarial Collaboration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 97-115.
- 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.
- DavidJ. Cooper & Hanming Fang, 2008.
"Understanding Overbidding In Second Price Auctions: An Experimental Study,"
Royal Economic Society, vol. 118(532), pages 1572-1595, October.
- David J. Cooper & Hanming Fang, 2006. "Understanding Overbidding in Second Price Auctions: An Experimental Study," Cowles Foundation Discussion Papers 1557, Cowles Foundation for Research in Economics, Yale University.
- Ondrej Rydval & Andreas Ortmann & Sasha Prokosheva & Ralph Hertwig, 2009.
"How Certain Is the Uncertainty Effect?,"
CERGE-EI Working Papers
wp385, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
- 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.
- Shogren, Jason F. & Cho, Sungwon & Koo, Cannon & List, John & Park, Changwon & Polo, Pablo & Wilhelmi, Robert, 2001. "Auction mechanisms and the measurement of WTP and WTA," Resource and Energy Economics, Elsevier, vol. 23(2), pages 97-109, April.
- Cox, James C. & Grether, David M., 1993.
"The Preference Reversal Phenomenon: Response Mode, Markets and Incentives,"
810, California Institute of Technology, Division of the Humanities and Social Sciences.
- David M. Grether & James C. Cox, 1996. "The preference reversal phenomenon: Response mode, markets and incentives (*)," Economic Theory, Springer, vol. 7(3), pages 381-405.
- Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kremmydas dimitrios).
If references are entirely missing, you can add them using this form.