Mean, Median or Mode? A Striking Conclusion From Lottery Experiments
AbstractThis paper deals with estimating data from experiments determining lottery certainty equivalents. The paper presents the parametric and nonparametric results of the least squares (mean), quantile (including median) and mode estimations. The examined data are found to be positively skewed for low probabilities and negatively skewed for high probabilities. This observation leads to the striking conclusion that lottery valuations are only nonlinearly related to probability when means are considered. Such nonlinearity is not confirmed by the mode estimator in which case the most likely lottery valuations are close to their expected values. This means that the most likely behavior of a group is fully rational. This conclusion is a significant departure from one of the fundamental results concerning lottery experiments presented so far.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 21758.
Date of creation: 30 Mar 2010
Date of revision:
Lottery experiments; Least Squares; Quantile; Median; and Mode Estimators; Nonparametric and Parametric Estimators; Relative Utility Function; Prospect Theory.;
Find related papers by JEL classification:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
- D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-11 (All new papers)
- NEP-CBE-2010-04-11 (Cognitive & Behavioural Economics)
- NEP-EXP-2010-04-11 (Experimental Economics)
- NEP-UPT-2010-04-11 (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.:
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- Lee, Myoung-jae, 1989. "Mode regression," Journal of Econometrics, Elsevier, vol. 42(3), pages 337-349, November.
- Schmidt, Ulrich & Traub, Stefan, 2009.
"An experimental investigation of the disparity between WTA and WTP for lotteries,"
Open Access Publications from Kiel Institute for the World Economy
28786, Kiel Institute for the World Economy (IfW).
- Ulrich Schmidt & Stefan Traub, 2009. "An Experimental Investigation of the Disparity Between WTA and WTP for Lotteries," Theory and Decision, Springer, vol. 66(3), pages 229-262, March.
- Traub, Stefan & Schmidt, Ulrich, 2006. "An Experimental Investigation of the Disparity between WTA and WTP for Lotteries," Economics Working Papers 2006,09, Christian-Albrechts-University of Kiel, Department of Economics.
- Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
- Kontek, Krzysztof, 2009. "Absolute vs. Relative Notion of Wealth Changes," MPRA Paper 17336, University Library of Munich, Germany.
- Kontek, Krzysztof, 2010. "Multi-Outcome Lotteries: Prospect Theory vs. Relative Utility," MPRA Paper 22947, University Library of Munich, Germany.
- Kontek, Krzysztof, 2010. "Density Based Regression for Inhomogeneous Data: Application to Lottery Experiments," MPRA Paper 22268, University Library of Munich, Germany.
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