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Inconsistent Choices in Lottery Experiments: Evidence from Rwanda

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  • Sarah Jacobson
  • Ragan Petrie

Abstract

Lottery experiments have been performed in many contexts to test theories of risk aversion and to measure risk preferences. People are typically offered a series of lotteries with increasing expected payoffs and variances. A person with a concave utility function should switch from risky bets to safer bets at some point and never switch back. Switching back implies preferences inconsistent with a concave utility function. Our experiment, conducted with a population of adults in Rwanda, presents respondents with a series of binary-choice lotteries over gains and losses. We observe that 54-55% of subjects made at least one inconsistent choice over gains or losses, and 7-13% made at least two inconsistent choices. This holds for both hypothetical and real lottery payoffs. Inconsistent choices were less common when stakes were higher, and women are more likely to be inconsistent. While risk aversion alone is not correlated with actual economic outcomes, such as membership in savings (tontines) and insurance groups and holding a larger number of bank accounts, inconsistency is.

Suggested Citation

  • Sarah Jacobson & Ragan Petrie, 2007. "Inconsistent Choices in Lottery Experiments: Evidence from Rwanda," Experimental Economics Center Working Paper Series 2007-03, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  • Handle: RePEc:exc:wpaper:2007-03
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    File URL: http://excen.gsu.edu/workingpapers/GSU_EXCEN_WP_2007-03.pdf
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    Cited by:

    1. Kerri Brick & Martine Visser & Justine Burns, 2012. "Risk Aversion: Experimental Evidence from South African Fishing Communities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 133-152.
    2. Steeve Marchand & Maria Adelaida Lopera, 2017. "Peer Effects and Risk-Taking Among Entrepreneurs: Lab-in-the-Field Evidence," Cahiers de recherche 1703, Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques.
    3. Morone, Andrea & Temerario, Tiziana, 2015. "Eliciting Preferences Over Risk: An Experiment," MPRA Paper 68519, University Library of Munich, Germany.
    4. Prasad, Kislaya & Salmon, Timothy C., 2013. "Self Selection and market power in risk sharing contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 71-86.
    5. Temerario, Tiziana, 2014. "Individual and Group Behaviour Toward Risk: A Short Survey," MPRA Paper 58079, University Library of Munich, Germany.
    6. Alberto E. Chong & David A. Fleming & Hernán D. Bejarano, 2011. "Trust and Trustworthiness in the Aftermath of Natural Disasters: Experimental Evidence from the 2010 Chilean Earthquake," Working Papers 2011-15, The George Washington University, Institute for International Economic Policy.

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