IDEAS home Printed from https://ideas.repec.org/p/war/wpaper/2020-03.html
   My bibliography  Save this paper

What do lab experiments tell us about the real world? The case of lotteries with extreme payoffs

Author

Listed:
  • Raman Kachurka

    (Faculty of Economic Sciences, University of Warsaw)

  • Michał Krawczyk

    (Faculty of Economic Sciences, University of Warsaw)

  • Joanna Rachubik

    (Faculty of Economic Sciences, University of Warsaw)

Abstract

In this study, we conduct a laboratory experiment in which the subjects make choices between real-world lottery tickets typically purchased by lottery customers. In this way, we are able to reliably offer extremely high potential payoffs, something rarely possible in economic experiments. In a between-subject design, we separately manipulate a number of features that distinguish the situation faced by the customers in the field and by subjects in typical laboratory experiments. We also have the unique opportunity to compare our data to actual sales data provided by the operator of the lottery. Overall, we find the distributions to be highly similar (meaning high external validity of the laboratory experiment). The only manipulation that makes a major difference is that when the probabilities of winning specific amounts are explicitly provided (which is not the case in the field), choices shift towards options with lower payoff variance. We also find that standard laboratory measures of risk posture fail to explain our subjects’ behavior in the main task.

Suggested Citation

  • Raman Kachurka & Michał Krawczyk & Joanna Rachubik, 2020. "What do lab experiments tell us about the real world? The case of lotteries with extreme payoffs," Working Papers 2020-03, Faculty of Economic Sciences, University of Warsaw.
    • Handle: RePEc:war:wpaper:2020-03
    as

    Download full text from publisher

    File URL: https://www.wne.uw.edu.pl/index.php/download_file/5387/
    File Function: First version, 2020
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Zhixin Dai & Fabio Galeotti & Marie Claire Villeval, 2018. "Cheating in the Lab Predicts Fraud in the Field: An Experiment in Public Transportation," Management Science, INFORMS, vol. 64(3), pages 1081-1100, March.
    2. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
    3. 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.
    4. Steffen Andersen & Seda Ertac & Uri Gneezy & Moshe Hoffman & John A. List, 2011. "Stakes Matter in Ultimatum Games," American Economic Review, American Economic Association, vol. 101(7), pages 3427-3439, December.
    5. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    6. Philip Grossman & Catherine Eckel, 2015. "Loving the long shot: Risk taking with skewed lotteries," Journal of Risk and Uncertainty, Springer, vol. 51(3), pages 195-217, December.
    7. Helga Fehr-Duda & Adrian Bruhin & Thomas Epper & Renate Schubert, 2010. "Rationality on the rise: Why relative risk aversion increases with stake size," Journal of Risk and Uncertainty, Springer, vol. 40(2), pages 147-180, April.
    8. Blair Cleave & Nikos Nikiforakis & Robert Slonim, 2013. "Is there selection bias in laboratory experiments? The case of social and risk preferences," Experimental Economics, Springer;Economic Science Association, vol. 16(3), pages 372-382, September.
    9. repec:feb:framed:0088 is not listed on IDEAS
    10. Murphy, James J. & Stevens, Thomas H., 2004. "Contingent Valuation, Hypothetical Bias, and Experimental Economics," Agricultural and Resource Economics Review, Cambridge University Press, vol. 33(2), pages 182-192, October.
    11. James Alm & Kim M. Bloomquist & Michael McKee, 2015. "On The External Validity Of Laboratory Tax Compliance Experiments," Economic Inquiry, Western Economic Association International, vol. 53(2), pages 1170-1186, April.
    12. Matteo M. Galizzi & Daniel Navarro-Martinez, 2019. "On the External Validity of Social Preference Games: A Systematic Lab-Field Study," Management Science, INFORMS, vol. 65(3), pages 976-1002, March.
    13. Levon Barseghyan & Jeffrey Prince & Joshua C. Teitelbaum, 2011. "Are Risk Preferences Stable across Contexts? Evidence from Insurance Data," American Economic Review, American Economic Association, vol. 101(2), pages 591-631, April.
    14. Joseph Golec & Maurry Tamarkin, 1998. "Bettors Love Skewness, Not Risk, at the Horse Track," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 205-225, February.
    15. Galizzi, Matteo M. & Machado, Sara R. & Miniaci, Raffaele, 2016. "Temporal stability, cross-validity, and external validity of risk preferences measures: experimental evidence from a UK representative sample," LSE Research Online Documents on Economics 67554, London School of Economics and Political Science, LSE Library.
    16. Filippos Exadaktylos & Antonio M. Espin & Pablo Branas-Garza, 2012. "Experimental Subjects are Not Different," Working Papers 12-11, Chapman University, Economic Science Institute.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Raman Kachurka & Michał Krawczyk & Joanna Rachubik, 2021. "State lottery in the lab: an experiment in external validity," Experimental Economics, Springer;Economic Science Association, vol. 24(4), pages 1242-1266, December.
    2. Charness, Gary & Gneezy, Uri & Kuhn, Michael A., 2013. "Experimental methods: Extra-laboratory experiments-extending the reach of experimental economics," Journal of Economic Behavior & Organization, Elsevier, vol. 91(C), pages 93-100.
    3. Douadia Bougherara & Lana Friesen & Céline Nauges, 2021. "Risk Taking with Left- and Right-Skewed Lotteries," Journal of Risk and Uncertainty, Springer, vol. 62(1), pages 89-112, February.
    4. Gary Charness & Thomas Garcia & Theo Offerman & Marie Claire Villeval, 2020. "Do measures of risk attitude in the laboratory predict behavior under risk in and outside of the laboratory?," Journal of Risk and Uncertainty, Springer, vol. 60(2), pages 99-123, April.
    5. Toke R. Fosgaard, 2018. "Cooperation stability: A representative sample in the lab," IFRO Working Paper 2018/08, University of Copenhagen, Department of Food and Resource Economics.
    6. Gizatulina, Alia & Gorelkina, Olga, 2021. "Selling “Money” on eBay: A field study of surplus division," Journal of Economic Behavior & Organization, Elsevier, vol. 181(C), pages 19-38.
    7. Thomas Åstebro & José Mata & Luís Santos-Pinto, 2015. "Skewness seeking: risk loving, optimism or overweighting of small probabilities?," Theory and Decision, Springer, vol. 78(2), pages 189-208, February.
    8. Collier, Trevor & Cotten, Stephen & Roush, Justin, 2022. "Using pandemic behavior to test the external validity of laboratory measurements of risk aversion and guilt," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 101(C).
    9. Benjamin L. Collier & Daniel Schwartz & Howard C. Kunreuther & Erwann O. Michel-Kerjan, 2017. "Risk Preferences in Small and Large Stakes: Evidence from Insurance Contract Decisions," NBER Working Papers 23579, National Bureau of Economic Research, Inc.
    10. Galizzi, Matteo M. & Machado, Sara R. & Miniaci, Raffaele, 2016. "Temporal stability, cross-validity, and external validity of risk preferences measures: experimental evidence from a UK representative sample," LSE Research Online Documents on Economics 67554, London School of Economics and Political Science, LSE Library.
    11. Anwesha Bandyopadhyay & Lutfunnahar Begum & Philip J. Grossman, 2021. "Gender differences in the stability of risk attitudes," Journal of Risk and Uncertainty, Springer, vol. 63(2), pages 169-201, October.
    12. Dertwinkel-Kalt, Markus & Köster, Mats, 2017. "Local thinking and skewness preferences," DICE Discussion Papers 248, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    13. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    14. Bocqueho, Geraldine & Jacquet, Florence & Reynaud, Arnaud, 2011. "Expected Utility or Prospect Theory Maximizers? Results from a Structural Model based on Field-experiment Data," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114257, European Association of Agricultural Economists.
    15. Christoph Bühren & Thorben C. Kundt, 2013. "Worker or Shirker – Who Evades More Taxes? A Real Effort Experiment," MAGKS Papers on Economics 201326, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    16. Luís Santos-Pinto & Adrian Bruhin & José Mata & Thomas Åstebro, 2015. "Detecting heterogeneous risk attitudes with mixed gambles," Theory and Decision, Springer, vol. 79(4), pages 573-600, December.
    17. Thomas Epper & Helga Fehr-Duda & Adrian Bruhin, 2011. "Viewing the future through a warped lens: Why uncertainty generates hyperbolic discounting," Journal of Risk and Uncertainty, Springer, vol. 43(3), pages 169-203, December.
    18. Julius Pahlke & Sebastian Strasser & Ferdinand Vieider, 2015. "Responsibility effects in decision making under risk," Journal of Risk and Uncertainty, Springer, vol. 51(2), pages 125-146, October.
    19. Atalay, Kadir & Bakhtiar, Fayzan & Cheung, Stephen & Slonim, Robert, 2014. "Savings and prize-linked savings accounts," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 86-106.
    20. El Harbi, Sana & Bekir, Insaf & Grolleau, Gilles & Sutan, Angela, 2015. "Efficiency, equality, positionality: What do people maximize? Experimental vs. hypothetical evidence from Tunisia," Journal of Economic Psychology, Elsevier, vol. 47(C), pages 77-84.

    More about this item

    Keywords

    Decision making under risk; External validity; Longshot bias; Perception of randomness; Number preferences in lotteries;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:war:wpaper:2020-03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marcin Bąba (email available below). General contact details of provider: https://edirc.repec.org/data/fesuwpl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.