Mean, Median or Mode? A Striking Conclusion From Lottery Experiments
This paper deals with estimating data from experiments determining lottery certainty equivalents. The paper presents the parametric and nonparametric results of the least squares (mean), quantile (including median) and mode estimations. The examined data are found to be positively skewed for low probabilities and negatively skewed for high probabilities. This observation leads to the striking conclusion that lottery valuations are only nonlinearly related to probability when means are considered. Such nonlinearity is not confirmed by the mode estimator in which case the most likely lottery valuations are close to their expected values. This means that the most likely behavior of a group is fully rational. This conclusion is a significant departure from one of the fundamental results concerning lottery experiments presented so far.
|Date of creation:||30 Mar 2010|
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- Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
- Krzysztof Kontek, 2009. "Lottery valuation using the aspiration / relative utility function," Working Papers 39, Department of Applied Econometrics, Warsaw School of Economics.
- Ulrich Schmidt & Stefan Traub, 2009.
"An Experimental Investigation of the Disparity Between WTA and WTP for Lotteries,"
Theory and Decision,
Springer, vol. 66(3), pages 229-262, March.
- Traub, Stefan & Schmidt, Ulrich, 2006. "An Experimental Investigation of the Disparity between WTA and WTP for Lotteries," Economics Working Papers 2006-09, Christian-Albrechts-University of Kiel, Department of Economics.
- Schmidt, Ulrich & Traub, Stefan, 2009. "An experimental investigation of the disparity between WTA and WTP for lotteries," Open Access Publications from Kiel Institute for the World Economy 28786, Kiel Institute for the World Economy (IfW).
- Kontek, Krzysztof, 2009. "Absolute vs. Relative Notion of Wealth Changes," MPRA Paper 17336, University Library of Munich, Germany.
- Lee, Myoung-jae, 1989. "Mode regression," Journal of Econometrics, Elsevier, vol. 42(3), pages 337-349, November. Full references (including those not matched with items on IDEAS)
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