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On correlated lotteries in economic applications

Author

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  • Dertwinkel-Kalt, Markus
  • Ebert, Sebastian
  • Köster, Mats

Abstract

Economic models and experiments frequently use lotteries with only a few outcomes. We study the correlation of such lotteries and discuss its relevance for economic applications. In particular, we fully characterize the joint distribution of two binary lotteries via their first three univariate moments and their correlation coefficient. As we illustrate alongside several examples, the resulting parametrization may be useful for economic modeling and experimental design.

Suggested Citation

  • Dertwinkel-Kalt, Markus & Ebert, Sebastian & Köster, Mats, 2023. "On correlated lotteries in economic applications," Journal of Economic Behavior & Organization, Elsevier, vol. 215(C), pages 292-306.
    • Handle: RePEc:eee:jeborg:v:215:y:2023:i:c:p:292-306
    DOI: 10.1016/j.jebo.2023.08.025
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    More about this item

    Keywords

    Binary lotteries; Correlation; Correlation neglect; Attention; Portfolio choice;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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