 Lotto lotteries — Decision making under uncertainty when payoffs are unknownJournal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2025, vol. 114, issue C Abstract: This paper analyses decision making under uncertainty when payoffs are unknown, similar to a Lotto lottery. In a Lotto lottery, the probability of winning a prize is known, but the size of the prize is unknown. This paper proposes a theoretical framework to model preferences over Lotto lotteries as compound lotteries. The first stage determines whether a prize is obtained, while the second stage determines the size of the prize. Then the paper empirically analyses human behaviour when uncertainty can be described as a Lotto lottery. There is considerable heterogeneity in the subjects’ aversion to lotteries with unknown payoffs. Further analysis shows that choices of decision makers can be best explained by a combination of risk and ambiguity preferences. These results suggest that subjects treat unknown payoffs similar to known payoffs with ambiguous probabilities. Keywords: Decision making; Uncertainty; Risk aversion; Lotteries; Ambiguity aversion; Subjective expected utility (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:114:y:2025:i:c:s2214804324001472 DOI: 10.1016/j.socec.2024.102310 Access Statistics for this article Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) is currently edited by Pablo Brañas Garza More articles in Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) from Elsevier |
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