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The Price of Luck

Author

Listed:
  • Sílvia Bou

    (Universitat Autónoma de Barcelona)

  • Magda Cayón

    (Universitat Autónoma de Barcelona)

Abstract

We find that the vast majority of students taking an advanced undergraduate finance course show a preference for luck in a classroom experiment. In Phase I of the experiment part of the students, group A, were asked to guess a coin toss five times in a row. In Phase II the rest of the students, group B, were given 10 EUR to bet on some of the Group A students taking a second go at guessing a sequence of five coin tosses (Phase III). Group B students’ bets were by default allocated to the worse performing student in Phase I. Switching to better performing Group A students was costly. A total of 23 out of 28 students were willing to pay for sw itching and thus showed a preference for luck.

Suggested Citation

  • Sílvia Bou & Magda Cayón, 2013. "The Price of Luck," Working Papers 1304, Departament Empresa, Universitat Autònoma de Barcelona, revised Jun 2013.
    • Handle: RePEc:bbe:wpaper:1304
    as

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    File URL: http://www.uab.cat/doc/DOC_WP_13_04
    File Function: Revised version, 2013
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    References listed on IDEAS

    as
    1. Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, vol. 36(6), pages 643-660, June.
    2. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Decision heuristics; hot hand fallacy; experiments.;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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