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Preference for Skew in Lotteries: Evidence from the Laboratory

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  • Santos-Pinto, Luís
  • Astebro, Thomas
  • Mata, José

Abstract

Using a laboratory experiment we investigate how skew in uences choices under risk. We find that subjects make significantly riskier choices when the distribution of payoffs is positively skewed, these choices being driven in part by the shape of the utility function but also by subjective distortion of probabilities. A utility model with probability distortion calibrated on laboratory data is able to explain why most gamblers in public lotteries buy only a small number of tickets.

Suggested Citation

  • Santos-Pinto, Luís & Astebro, Thomas & Mata, José, 2009. "Preference for Skew in Lotteries: Evidence from the Laboratory," MPRA Paper 17165, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:17165
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    2. John Griffin, 2015. "Risk Premia and Knightian Uncertainty in an Experimental Market Featuring a Long-Lived Asset," Fordham Economics Discussion Paper Series dp2015-01, Fordham University, Department of Economics.
    3. Matthew P. Taylor, 2020. "Liking the long-shot … but just as a friend," Journal of Risk and Uncertainty, Springer, vol. 61(3), pages 245-261, December.
    4. John Griffin, 2015. "Risk Premia and Knightian Uncertainty in an Experimental Market Featuring a Long-Lived Asset," Fordham Economics Discussion Paper Series dp2015-01er:dp2015-01, Fordham University, Department of Economics.
    5. Mayrhofer, Thomas & Krieger, Miriam, 2012. "Patient Preferences and Treatment Thresholds under Diagnostic Risk: An Economic Laboratory Experiment," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62033, Verein für Socialpolitik / German Economic Association.
    6. Lefebvre, Mathieu & Vieider, Ferdinand M. & Villeval, Marie Claire, 2010. "Incentive effects on risk attitude in small probability prospects," Economics Letters, Elsevier, vol. 109(2), pages 115-120, November.
    7. John Morgan & Henrik Orzen & Martin Sefton & Dana Sisak, 2016. "Strategic and Natural Risk in Entrepreneurship: An Experimental Study," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 420-454, April.
    8. Young-Il Kim & Jungmin Lee, 2012. "Estimating Risk Aversion Using Individual-Level Survey Data," Korean Economic Review, Korean Economic Association, vol. 28, pages 221-239.
    9. Luciano Somoza & Antoine Didisheim, 2022. "The End of the Crypto-Diversification Myth," Swiss Finance Institute Research Paper Series 22-53, Swiss Finance Institute.
    10. Ferdinand M. Vieider & Peter Martinsson & Pham Khanh Nam & Nghi Truong, 2019. "Risk preferences and development revisited," Theory and Decision, Springer, vol. 86(1), pages 1-21, February.
    11. Vieider, Ferdinand M. & Truong, Nghi & Martinsson, Peter & Pham Khanh Nam & Martinsson, Peter, 2013. "Risk preferences and development revisited: A field experiment in Vietnam," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2013-403, WZB Berlin Social Science Center.
    12. Adhikari, Binay Kumar & Agrawal, Anup, 2016. "Religion, gambling attitudes and corporate innovation," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 229-248.
    13. Colasante, Annarita & Riccetti, Luca, 2021. "Financial and non-financial risk attitudes: What does it matter?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).

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    More about this item

    Keywords

    Risk; Skew; Gambling; Lab Experiment;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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