Choice of Prizes Allocated by Multiple Lotteries with Endogenously Determined Probabilities

Posted: 26 Oct 2001

See all articles by Amnon Rapoport

Amnon Rapoport

University of Arizona - Eller College of Management

Alison King Lo

Massachusetts Institute of Technology (MIT) - Sloan School of Management; Duke University - Graduate School

Rami Zwick

University of California, Riverside

Abstract

We study a class of interactive decision making situations in which each agent must choose to participate in one of several lotteries with commonly known prizes. In contrast to the widely studied paradigm of choice between gambles in individual decision making under risk, the probability of winning a prize in each of the lotteries in our study is endogenously determined. In particular, for each lottery, it is known to decrease in the number of agents choosing to play that lottery. We construct the Nash equilibrium solution to this game and then test it experimentally in the special case where each lottery yields only a single prize. The results show a remarkable degree of tacit coordination that supports the equilibrium solution under the assumption of common risk-aversion. However, this coordination is not achieved via individual level randomization. Rather, the entry decisions of most of the subjects can be characterized by local adjustments to the outcome of the previous iteration of the same game along the lines suggested by anticipatory learning models.

Keywords: Coordination

JEL Classification: C72, C92

Suggested Citation

Rapoport, Amnon and Lo, Alison King and Zwick, Rami, Choice of Prizes Allocated by Multiple Lotteries with Endogenously Determined Probabilities. Organizational Behavior and Human Decision Processes, Vol. 87, No. 1, pp. 180-206, 2002, Available at SSRN: https://ssrn.com/abstract=287804

Amnon Rapoport

University of Arizona - Eller College of Management ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-9325 (Phone)
520-621-4171 (Fax)

Alison King Lo

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States
617-519-4088 (Phone)

Duke University - Graduate School ( email )

Durham, NC 27708-0097
United States

Rami Zwick (Contact Author)

University of California, Riverside ( email )

900 University Avenue
Riverside, CA 92521
United States

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