Risk attitude in lotteries offering real products and monetary outcomes

Shavit Tal, Benzion Uri, Shahrabani Shosh

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

Using two auction mechanisms, the second price auction and the Becker, DeGroot, and Marschak mechanism, we examined individuals' buying and selling bidding patterns in three types of binary lotteries: a lottery offering only real products, a lottery offering only monetary outcomes and mixed lotteries offering both real products and monetary value outcomes. Participants' willingness to pay and willingness to accept for the product lottery suggest risk neutrality. In contrast, participants' bidding prices for the monetary and mixed lotteries suggest risk aversion. These findings suggest that an individual's risk attitude depends upon the type of lottery, perhaps indicating a "product illusion".

Original languageEnglish
Pages (from-to)253-261
Number of pages9
JournalInternational Journal of Economic Theory
Volume6
Issue number2
DOIs
StatePublished - 6 Oct 2010
Externally publishedYes

Keywords

  • Becker
  • DeGroot
  • Experiment
  • Lotteries
  • Marschak mechanism
  • Product illusion
  • Risk attitude
  • Second price auction
  • Uncertainty
  • Willingness to accept
  • Willingness to pay

ASJC Scopus subject areas

  • Economics and Econometrics

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