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Comparing Small-Group and Individual Behavior in Lottery-Choice Experiments

Ronald Baker, Susan Laury and Arlington Williams ()

No 2007-018, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

Abstract: Lottery-choice experiments are conducted to compare risk preferences revealed by three-person groups versus isolated individuals. A lottery-choice experiment consists of a menu of paired lottery choices structured so that the crossover point from a low-risk to a high-risk lottery can be used to infer the degree of risk aversion. A between-subjects experiment of group versus individual lottery-choice decisions reveal that there is not a significant difference in the average crossover point, but lottery choices are affected by a significant interaction between subject composition (individual or group) and lottery winning percentage. Also, a three-phased individual-group-individual sequenced experiment reveals that the count of safe lotteries chosen by groups is, on average, significantly greater than the mean of the individual members. Finally, making a phase-two group decision has a significant impact on subsequent phase-three individual decisions relative to the initial phase-one (individual) decisions.

Keywords: lab experiments; risk preferences; group decisions (search for similar items in EconPapers)
JEL-codes: C91 C92 D80 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2007-09, Revised 2008-05
New Economics Papers: this item is included in nep-cbe, nep-cdm, nep-dcm, nep-exp and nep-upt
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