On Correlated Lotteries in Economic Applications
24 Pages Posted: 5 Feb 2022 Last revised: 12 Oct 2022
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: Suggested Citation