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The Price of Luck

Author

Listed:
  • Bou, Silvia
  • Brandts, Jordi
  • Cayón, Magda
  • Guillén, Pablo

Abstract

We find that the vast majority of students taking an advanced undergraduate finance course show a preference for luck in a classroom experiment. In Phase I of the experiment part of the students, group A, were asked to guess a coin toss five times in a row. In Phase II the rest of the students, group B, were given 10 EUR to bet on some of the Group A students taking a second go at guessing a sequence of five coin tosses (Phase III). Group B students' bets were by default allocated to the worse performing student in Phase I. Switching to better performing Group A students was costly. A total of 23 out of 28 students were willing to pay for switching and thus showed a preference for luck.

Suggested Citation

  • Bou, Silvia & Brandts, Jordi & Cayón, Magda & Guillén, Pablo, 2013. "The Price of Luck," Working Papers 2013-10, University of Sydney, School of Economics, revised Feb 2015.
    • Handle: RePEc:syd:wpaper:2123/9242
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    File URL: http://www.econ-wpseries.com/2013/201310-2.pdf
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    References listed on IDEAS

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    1. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    2. Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, vol. 36(6), pages 643-660, June.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Superstitions and markets
      by Economic Logician in Economic Logic on 2013-09-03 19:12:00

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    More about this item

    Keywords

    experiments; hot hand fallacy; Decision heuristics;
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