What do lab experiments tell us about the real world? The case of lotteries with extreme payoffs

Raman Kachurka, Michał Krawczyk () and Joanna Rachubik
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Michał Krawczyk: Faculty of Economic Sciences, University of Warsaw

No 2020-03, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: In this study, we conduct a laboratory experiment in which the subjects make choices between real-world lottery tickets typically purchased by lottery customers. In this way, we are able to reliably offer extremely high potential payoffs, something rarely possible in economic experiments. In a between-subject design, we separately manipulate a number of features that distinguish the situation faced by the customers in the field and by subjects in typical laboratory experiments. We also have the unique opportunity to compare our data to actual sales data provided by the operator of the lottery. Overall, we find the distributions to be highly similar (meaning high external validity of the laboratory experiment). The only manipulation that makes a major difference is that when the probabilities of winning specific amounts are explicitly provided (which is not the case in the field), choices shift towards options with lower payoff variance. We also find that standard laboratory measures of risk posture fail to explain our subjects’ behavior in the main task.

Keywords: Decision making under risk; External validity; Longshot bias; Perception of randomness; Number preferences in lotteries (search for similar items in EconPapers)
JEL-codes: C91 D01 D81 D83 D91 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2020
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-rmg
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https://www.wne.uw.edu.pl/index.php/download_file/5387/ First version, 2020 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2020-03

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