Does luck make people more optimistic and patient? - Lessons from an experiment with students and rural subjects in Malawi

Stein Holden (), Sarah Tione, Mesfin Tilahun () and Samson Katengeza ()
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Mesfin Tilahun: Centre for Land Tenure Studies, Norwegian University of Life Sciences, Postal: Centre for Land Tenure Studies, Norwegian University of Life Sciences, P.O. Box 5003, NO-1432 Aas, Norway
Samson Katengeza: Centre for Land Tenure Studies, Norwegian University of Life Sciences, Postal: Centre for Land Tenure Studies, Norwegian University of Life Sciences, P.O. Box 5003, NO-1432 Aas, Norway

No 4/24, CLTS Working Papers from Norwegian University of Life Sciences, Centre for Land Tenure Studies

Abstract: We investigate how random luck in repeated variants of the risky investment game of Gneezy, Leonard, and List (2009); Gneezy and Potters (1997) influences risk-taking and discounting behavior in future risky prospects with probabilistic payouts one week, six, 12, and 24 months into the future. We test non-parametrically whether luck enhances risk-taking and patience (reduces the discount rate) in risky prospects with delayed payouts. To investigate whether luck influences probability weighting (w(p) function), we estimate structural models with two-parameter Prelec probability weighting functions to decompose risk-taking in prospects with potential payouts six and 12 months into the future. We find that luck results in more optimistic (reduces the Prelec β parameter) and less non-linear (inverse-S-shaped) (increases the Prelec α parameter) w(p) function. We assess this for two samples from Malawi: one is a random sample of university students (n=721), and the other is a random sample (n=835) of rural subjects with limited education. The students were found to be more patient but had similar probability weighting functions.

Keywords: Luck; Discounting; Risk-taking; Probability weighting (search for similar items in EconPapers)
JEL-codes: C91 C93 D81 D84 D91 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2024-07-18
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
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