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The Price of Luck

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Author Info

  • Bou, Silvia
  • Brandts, Jordi
  • Cayón, Magda
  • Guillén, Pablo

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 switching and thus showed a preference for luck.

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File URL: http://hdl.handle.net/2123/9242
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Bibliographic Info

Paper provided by University of Sydney, School of Economics in its series Working Papers with number 2013-10.

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Date of creation: Jun 2013
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Handle: RePEc:syd:wpaper:2123/9242

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Postal: Sydney, NSW 2006
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Web page: http://sydney.edu.au/arts/economics
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Related research

Keywords: experiments; hot hand fallacy; Decision heuristics;

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  1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  2. 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.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Superstitions and markets
    by Economic Logician in Economic Logic on 2013-09-03 14:12:00

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