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Decision Making under Uncertainty When the Stakes Are High: Evidence from a Lottery Game Show

1997; Wiley; Volume: 64; Issue: 1 Linguagem: Inglês

10.2307/1061038

2325-8012

Philip L. Hersch, Gerald S. McDougall,

Experimental Behavioral Economics Studies

Illinois Instant Riches, a televised set of three different games of chance, provides a natural experiment for assessing the risk taking behavior of individuals. Recently, there have been a limited number of other studies that have also used game shows as natural experiments, including Card Sharks [6], Jeopardy! [11] and The Price Is Right [1]. An advantage of using game shows over most laboratory experiments is the ability to see how individuals respond to wagers involving relatively large sums. Instant Riches is particularly interesting in this regard because it involves very high stakes. Across the three games played, the potential winnings from wagers offered to contestants ranged from $2000 to $100,000, losses from $3000 to $35,000, and expected values from -$10,938 to $15,000. Given our data, our primary research objective is to provide additional evidence on the degree of risk aversion under high stakes wagering. To date, that evidence is mixed. Gertner concludes that Card Sharks contestants are, on average, risk averse. Metrick could not reject the hypothesis that Jeopardy! contestants are risk neutral. In respective experimental studies using Indian peasant farmers and Chinese university students, Binswanger [2; 3] and Kachelmeier and Shehata [9] employed small nominal stakes that were nonetheless large relative to their subjects' monthly incomes (e.g., 20 percent to just over 100 percent of income). Both reported a shift toward risk aversion, as stakes were increased, but in the Kachelmeier study the subjects remained largely risk neutral. In another experimental study, this time involving modest stakes (e.g., hundreds of dollars) Goodman et al. [7] found expected value to be the best predictor of Las Vegas casino patrons' certainty equivalents, a result implying risk neutrality. In all these studies the stakes were lower than for Instant Riches.