Stocks as Lotteries? An Experimental Test of Expected Utility vs Behavioral Models

Brice Corgnet, Yao Thibaut Kpegli and Jacopo Magnani
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Brice Corgnet: Emlyon Business School, Université Lumière Lyon 2, Université Jean Monnet Saint-Etienne, GATE, CNRS, 69007, Lyon, France
Yao Thibaut Kpegli: Université de Pau et des Pays de l’Adour, TREE UMR 6031, France
Jacopo Magnani: Department of Economics, Norwegian University of Science and Technology

No 2503, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: Our study provides the first causal test of classical and behavioral asset pricing models that incorporate skewness pricing. In line with these models, our experimental markets show that skewness is systematically priced thus confirming the need for asset pricing models accounting for asset skewness. Our findings also reveal that positively skewed assets available in small supply exhibit negative expected returns which is consistent with prospect theory but not with expected utility models. In line with the underlying mechanism of prospect theory models, we also show that the negative returns of the positively skewed asset are most pronounced during market sessions where traders overweight the low probability of receiving a large payoff.

Keywords: Asset pricing; CAPM; skewness; probability weighting; experimental markets; behavioral finance (search for similar items in EconPapers)
JEL-codes: C92 G10 G40 (search for similar items in EconPapers)
Date: 2025
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