On Correlated Lotteries in Economic Applications

25 Pages Posted: 5 Feb 2022 Last revised: 3 May 2023

See all articles by Markus Dertwinkel-Kalt

Markus Dertwinkel-Kalt

University of Münster; Max Planck Institute for Research on Collective Goods

Sebastian Ebert

Heidelberg University

Mats Köster

Central European University (CEU)

Date Written: May 2, 2023


Economic models and experiments frequently use lotteries with only a few outcomes. We study the correlation of such lotteries and discuss its relevance for economic applications. In particular, we fully characterize the joint distribution of two binary lotteries via their first three univariate moments and their correlation coefficient. As we illustrate alongside several examples, the resulting parametrization may be useful for economic modeling and experimental design.

Keywords: Binary Lotteries, Correlation, Correlation Neglect, Limited Attention, Portfolio Choice

JEL Classification: D01, D81, C90

Suggested Citation

Dertwinkel-Kalt, Markus and Ebert, Sebastian and Köster, Mats, On Correlated Lotteries in Economic Applications (May 2, 2023). Available at SSRN: https://ssrn.com/abstract=3986161 or http://dx.doi.org/10.2139/ssrn.3986161

Markus Dertwinkel-Kalt

University of Münster ( email )

Universitätsstraße 14-16
Münster, 48143

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113

Sebastian Ebert

Heidelberg University ( email )

Grabengasse 1
Heidelberg, 69117
06221543443 (Phone)
69115 (Fax)

Mats Köster (Contact Author)

Central European University (CEU) ( email )

Quellenstraße 51

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