On Correlated Lotteries in Economic Applications
25 Pages Posted: 5 Feb 2022 Last revised: 3 May 2023
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: Suggested Citation