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The Medium Prizes Paradox: Evidence from a Simulated Casino

  • Haruvy, Ernan
  • Erev, Ido
  • Sonsino, Doron
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    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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    Article provided by Springer in its journal Journal of Risk and Uncertainty.

    Volume (Year): 22 (2001)
    Issue (Month): 3 (May)
    Pages: 251-61

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    Handle: RePEc:kap:jrisku:v:22:y:2001:i:3:p:251-61
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