Mean, Median or Mode? A Striking Conclusion From Lottery Experiments

Krzysztof Kontek (krzysztof.kontek@acnet.com.pl)

MPRA Paper from University Library of Munich, Germany

Abstract: This paper deals with estimating data from experiments determining lottery certainty equivalents. The paper presents the parametric and nonparametric results of the least squares (mean), quantile (including median) and mode estimations. The examined data are found to be positively skewed for low probabilities and negatively skewed for high probabilities. This observation leads to the striking conclusion that lottery valuations are only nonlinearly related to probability when means are considered. Such nonlinearity is not confirmed by the mode estimator in which case the most likely lottery valuations are close to their expected values. This means that the most likely behavior of a group is fully rational. This conclusion is a significant departure from one of the fundamental results concerning lottery experiments presented so far.

Keywords: Lottery experiments; Least Squares, Quantile, Median, and Mode Estimators; Nonparametric and Parametric Estimators; Relative Utility Function; Prospect Theory. (search for similar items in EconPapers)
JEL-codes: C01 C13 C14 C21 C51 C81 C91 D03 D81 D87 (search for similar items in EconPapers)
Date: 2010-03-30
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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