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When a risky prospect is valued more than its best possible outcome

Andreas Drichoutis, Rodolfo Nayga (rnayga@tamu.edu), Jayson Lusk and Panagiotis Lazaridis (t.lazaridis@aua.gr)

No 2009-12, Working Papers from Agricultural University of Athens, Department Of Agricultural Economics

Abstract: In this paper, we document a violation of normative and descriptive models of decision making under risk. In contrast to uncertainty effects found by Gneezy, List and Wu (2006), some subjects in our experiments valued certain lotteries more than the best possible outcome. We show that the likelihood of observing this effect is positively related to the probability of winning the lottery and negatively related to the value of the maximum outcome. We also demonstrate that this effect can be partially attributed to subjects’ competitiveness and level of comprehension of the lottery mechanism; the competitiveness effects far outweighing comprehension effects.

Keywords: lottery; risk; competitiveness; Vickrey auctions (search for similar items in EconPapers)
JEL-codes: D44 D81 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2009
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
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Journal Article: When a risky prospect is valued more than its best possible outcome (2012) Downloads
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