Comparing Small-Group and Individual Behavior in Lottery-Choice Experiments
Ronald J. Baker II
Millersville University - Economics
Georgia State University - Andrew Young School of Policy Studies
Arlington W. Williams
Indiana University Bloomington - Department of Economics
September 20, 2007
CAEPR Working Paper No. 2007-018
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.
Number of Pages in PDF File: 30
Keywords: lab experiments, risk preferences, group decisions
JEL Classification: C91, C92, D80
Date posted: September 20, 2007
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