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Raising Revenue With Raffles: Evidence from a Laboratory Experiment

  • Alexander Matros
  • Wooyoung Lim
  • Theodore Turocy

Lottery and raffle mechanisms have a long history as economic institutions for raising funds. In a series of laboratory experiments we find that total spending in raffles is much higher than Nash equilibrium predicts. Moreover, this overspending is persistent as the number of participants in the raffle increases. Subjects as a group do not strategically reduce spending as group sizes increase, in contrast to the comparative statics theory provides. The lack of strategic response cannot be explained by learning direction theory or level-$k$ reasoning models, although quantal response equilibrium can fit the observed distribution of choices. Much of the observed spending levels in the larger groups cannot be explained by financial incentives.

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Paper provided by University of Pittsburgh, Department of Economics in its series Working Papers with number 377.

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Date of creation: Feb 2009
Date of revision: Feb 2009
Handle: RePEc:pit:wpaper:377
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