Preference for Skew in Lotteries: Evidence from the Laboratory

Santos-Pinto, Luís and Astebro, Thomas and Mata, José (2009): Preference for Skew in Lotteries: Evidence from the Laboratory.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Risk; Skew; Gambling; Lab Experiment
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior

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