The Price of Luck

26 Pages Posted: 9 Jan 2015

See all articles by Sílvia Ysas

Sílvia Ysas

Autonomous University of Barcelona - Department of Business Economics

Magda Cayón

Universitat Autònoma de Barcelona

Jordi Brandts

Instituto de Analisis Economico (CSIC) Barcelona

Pablo Guillén

The University of Sydney

Date Written: June 9, 2013

Abstract

We find that the vast majority of students taking an advanced undergraduate finance course show a preference for luck in a classroom experiment. In Phase I of the experiment part of the students, group A, were asked to guess a coin toss five times in a row. In Phase II the rest of the students, group B, were given 10 EUR to bet on some of the Group A students taking a second go at guessing a sequence of five coin tosses (Phase III). Group B students’ bets were by default allocated to the worse performing student in Phase I. Switching to better performing Group A students was costly. A total of 23 out of 28 students were willing to pay for switching and thus showed a preference for luck.

Keywords: Decision heuristics, hot hand fallacy, experiments

JEL Classification: C90, G02, G11

Suggested Citation

Ysas, Sílvia and Cayón, Magda and Brandts, Jordi and Guillén, Pablo, The Price of Luck (June 9, 2013). Available at SSRN: https://ssrn.com/abstract=2547421 or http://dx.doi.org/10.2139/ssrn.2547421

Sílvia Ysas (Contact Author)

Autonomous University of Barcelona - Department of Business Economics ( email )

Edifici B - Campus de la UAB
Bellaterra (Cerdanyola del Vallès)
Barcelona, Barcelona 08193
Spain

Magda Cayón

Universitat Autònoma de Barcelona ( email )

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
Spain
+34935814302 (Phone)
+34935812555 (Fax)

Jordi Brandts

Instituto de Analisis Economico (CSIC) Barcelona ( email )

UAB Campus
E-08193 Bellaterra
Spain

Pablo Guillén

The University of Sydney

University of Sydney
Sydney, NC NSW 2006
Australia

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