Loving the Long Shot: Risk Taking with Skewed Lotteries

Philip Grossman and Catherine Eckel

No 41-12, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: We develop a new protocol, adapted from the Eckel and Grossman (2002, 2008) risk measure, to elicit skewness preferences. The new lottery choices have the same expected payoffs and risk (variance) as the original choices, but with increasing degrees of positive skewness. We find that our subjects are skewness-seekers. More importantly, positive skewness in the payoff structure increases the number of subjects willing to gamble as well as increasing subjects’ risk taking in lottery choices. We conclude that skewed, long-shot payoffs entice decision makers to higher levels of risk taking than they otherwise would prefer.

Keywords: Risk; Skewness; Gambling; Long Shot; Lotteries (search for similar items in EconPapers)
JEL-codes: C91 D03 D81 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2012-09
New Economics Papers: this item is included in nep-exp and nep-upt
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Citations: View citations in EconPapers (1)

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Journal Article: Loving the long shot: Risk taking with skewed lotteries (2015)
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