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The Medium Prizes Paradox: Evidence from a Simulated Casino

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  • Haruvy, Ernan
  • Erev, Ido
  • Sonsino, Doron

Abstract

Mainstream explanations to gambling specify conditions under which human agents are locally risk loving. Such theories, however, fail to explain the typically observed prize distribution of a few large prizes and a large number of medium ones--hence the medium prizes paradox. In the current study we show that adaptive learning models recently proposed in the literature offer a solution. Simulations of such models predict that multiple medium prizes will slow down the decrease (over time) in agents' inclination to gamble. We run a laboratory experiment that supports this explanation and shows that the positive effect of medium prizes on the inclination to gamble increases with time. Copyright 2001 by Kluwer Academic Publishers

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  • Haruvy, Ernan & Erev, Ido & Sonsino, Doron, 2001. "The Medium Prizes Paradox: Evidence from a Simulated Casino," Journal of Risk and Uncertainty, Springer, vol. 22(3), pages 251-261, May.
    • Handle: RePEc:kap:jrisku:v:22:y:2001:i:3:p:251-61
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    Citations

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    Cited by:

    1. Aradhna Krishna & M. Utku Ünver, 2008. "Research Note—Improving the Efficiency of Course Bidding at Business Schools: Field and Laboratory Studies," Marketing Science, INFORMS, vol. 27(2), pages 262-282, 03-04.
    2. Yu Wang & Aradhna Krishna, 2006. "Timeshare Exchange Mechanisms," Management Science, INFORMS, vol. 52(8), pages 1223-1237, August.
    3. Ido Erev & Ira Glozman & Ralph Hertwig, 2008. "What impacts the impact of rare events," Journal of Risk and Uncertainty, Springer, vol. 36(2), pages 153-177, April.
    4. Oyarzun, Carlos & Sarin, Rajiv, 2012. "Mean and variance responsive learning," Games and Economic Behavior, Elsevier, vol. 75(2), pages 855-866.
    5. Peel, D.A., 2013. "Heterogeneous agents and the implications of the Markowitz model of utility for multi-prize lottery tickets," Economics Letters, Elsevier, vol. 119(3), pages 264-267.
    6. Per Binde, 2005. "Gambling Across Cultures: Mapping Worldwide Occurrence and Learning from Ethnographic Comparison," International Gambling Studies, Taylor & Francis Journals, vol. 5(1), pages 1-27, June.
    7. Jonathan Parke & Adrian Parke, 2013. "Does Size Really Matter? A Review Of The Role Of Stake And Prize Levels In Relation To Gambling-Related Harm," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 7(3), pages 77-110.
    8. Qingxia Kong & Georg D. Granic & Nicolas S. Lambert & Chung Piaw Teo, 2020. "Judgment Error in Lottery Play: When the Hot Hand Meets the Gambler’s Fallacy," Management Science, INFORMS, vol. 66(2), pages 844-862, February.
    9. Roth, Alvin E. & Herzog, Stefan & Hau, Robin & Hertwig, Ralph & Erev, Ido & Ert, Eyal & Haruvy, Ernan & Stewart, Terrence & West, Robert & Lebiere, Christian, 2009. "A Choice Prediction Competition: Choices From Experience and From Description," Scholarly Articles 5343169, Harvard University Department of Economics.

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