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On Correlated Lotteries in Economic Applications

24 Pages Posted: 5 Feb 2022 Last revised: 12 Oct 2022

See all articles by Markus Dertwinkel-Kalt

Markus Dertwinkel-Kalt

University of Münster

Sebastian Ebert

Heidelberg University; affiliation not provided to SSRN

Mats Köster

Central European University (CEU)

Date Written: October 11, 2022

Abstract

Economic models and experiments frequently use lotteries with only a few outcomes. We provide a comprehensive analysis of the correlation between such lotteries as well as their dependence structure more generally. We fully 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, Correlation, Correlation Neglect, Limited Attention, Portfolio Choice

JEL Classification: D01, D81, c90

Suggested Citation

Dertwinkel-Kalt, Markus and Ebert, Sebastian and Ebert, Sebastian and Köster, Mats, On Correlated Lotteries in Economic Applications (October 11, 2022). 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
Germany

Sebastian Ebert

Heidelberg University ( email )

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

affiliation not provided to SSRN

Mats Köster (Contact Author)

Central European University (CEU) ( email )

Quellenstraße 51
Vienna
Austria

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