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A Note on an Alternative Approach to Experimental Design of Lottery Prospects

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  • Balcombe, Kelvin
  • Fraser, Iain

Abstract

e introduce an alternative approach to lottery prospects experimental design aimed at collecting experimental data for parametric estimation of the cumulative form of Prospect Theory (PT). Our approach incorporates two fundamental principles: ensuring that all tasks provide valuable information and avoiding redundancy among tasks. These principles mean that we avoid the construction of lottery prospects that duplicate information within the set of tasks generated. The methodological approach that we have designed ensures that each lottery pair is non-redundant in an informational sense. This means that the set of lottery tasks generated can help to improve the effectiveness of data collection when estimation of preference parameters is the main research objective. In this note, we describe our approach to experimental design in detail.

Suggested Citation

  • Balcombe, Kelvin & Fraser, Iain, 2024. "A Note on an Alternative Approach to Experimental Design of Lottery Prospects," MPRA Paper 119743, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:119743
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    File URL: https://mpra.ub.uni-muenchen.de/119743/1/MPRA_paper_119743.pdf
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    More about this item

    Keywords

    Experimental Design; Lotteries; Risk and Uncertainty; Prospect Theory.;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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