A Note on Correlated Lotteries in Economic Applications

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See all articles by Markus Dertwinkel-Kalt

Markus Dertwinkel-Kalt

University of Münster

Sebastian Ebert

Frankfurt School of Finance & Management; Frankfurt School of Finance & Management

Mats Köster

Central European University (CEU)

Date Written: December 15, 2021

Abstract

Economic models and experiments make frequent use of lotteries with only few outcomes. We provide an accessible analysis of the correlation between these lotteries as well as their dependence more generally. We characterize the joint distribution of two binary lotteries via their first three univariate moments and their correlation coefficient. As we illustrate alongside some examples, the resulting parametrization may be useful for economic modeling and experimental design.

Keywords: Binary Lotteries, Interdependence, Correlation, Concordance

JEL Classification: D01, D81

Suggested Citation

Dertwinkel-Kalt, Markus and Ebert, Sebastian and Ebert, Sebastian and Köster, Mats, A Note on Correlated Lotteries in Economic Applications (December 15, 2021). Available at SSRN: https://ssrn.com/abstract=

Markus Dertwinkel-Kalt

University of Münster ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

Sebastian Ebert

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt, 60322
Germany

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt, 60322
Germany

Mats Köster (Contact Author)

Central European University (CEU) ( email )

Quellenstraße 51
Vienna
Austria

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