Negative recency, randomization device choice, and reduction of compound lotteries

Kim Kaivanto and Eike Kroll

Economics Letters, 2012, vol. 115, issue 2, 263-267

Abstract: We report an experiment in which subjects are not indifferent between real-money lotteries implemented with randomization devices that are equivalent under the Reduction Axiom. Instead, choice behavior is consistent with subjective distortion of conditional probability, and this persists in treatment conditions that control for (i) computational limitations and (ii) possible confounding by ratio bias.

Keywords: Reduction of compound lotteries; Negative recency effect; Law of small numbers; Design of experiments; St. Petersburg paradox; Myopic loss aversion (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:115:y:2012:i:2:p:263-267

DOI: 10.1016/j.econlet.2011.12.078

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