The Price of Luck
AbstractWe 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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Bibliographic InfoPaper provided by University of Sydney, School of Economics in its series Working Papers with number 2013-10.
Date of creation: Jun 2013
Date of revision:
experiments; hot hand fallacy; Decision heuristics;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-15 (All new papers)
- NEP-CBE-2013-07-15 (Cognitive & Behavioural Economics)
- NEP-EXP-2013-07-15 (Experimental Economics)
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Levine's Working Paper Archive
7656, David K. Levine.
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