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The Effect of Competition on the Evaluation of Lotteries

Author

Listed:
  • Tal Shavit
  • Shosh Shahrabani
  • Uri Benzion

Abstract

Many studies have examined the bid price (Willingness to Pay or WTP) and the Ask price (Willingness to Accept or WTA) for ordinary real products, such as coffee mugs, candy bars, and pens, or for lotteries. This study analyzes the determinants of bid-and-ask prices in lotteries. Using a second-price auction, we elicit participants' WTP and WTA for lotteries. Participants are divided into groups according to their risk attitude and win-loving behavior. Our results indicate that greater risk-seeking and higher win-loving increase the WTP, while higher risk-seeking and lower win-loving increase the WTA. Therefore, experimental studies should separate participants into different risk-seeking and win-loving groups to explain WTP and WTA disparities for risky assets. Moreover win-loving behavior should be taken into consideration in the decision-making process with respect to asset pricing.

Suggested Citation

  • Tal Shavit & Shosh Shahrabani & Uri Benzion, 2010. "The Effect of Competition on the Evaluation of Lotteries," The American Economist, Sage Publications, vol. 55(1), pages 93-104, May.
    • Handle: RePEc:sae:amerec:v:55:y:2010:i:1:p:93-104
    DOI: 10.1177/056943451005500110
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    References listed on IDEAS

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