Experimental Economics

, Volume 12, Issue 3, pp 332–349 | Cite as

Range effects and lottery pricing

  • Pavlo R. BlavatskyyEmail author
  • Wolfgang R. Köhler


A standard method to elicit certainty equivalents is the Becker-DeGroot-Marschak (BDM) procedure. We compare the standard BDM procedure and a BDM procedure with a restricted range of minimum selling prices that an individual can state. We find that elicited prices are systematically affected by the range of feasible minimum selling prices. Expected utility theory cannot explain these results. Non-expected utility theories can only explain the results if subjects consider compound lotteries generated by the BDM procedure. We present an alternative explanation where subjects sequentially compare the lottery to monetary amounts in order to determine their minimum selling price. The model offers a formal explanation for range effects and for the underweighting of small and the overweighting of large probabilities.


Certainty equivalent Experiment Stochastic Becker-DeGroot-Marschak (BDM) method Elicitation procedure Range effects 

JEL Classification

C91 D81 


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Copyright information

© Economic Science Association 2009

Authors and Affiliations

  1. 1.Institute for Empirical Research in EconomicsUniversity of ZurichZurichSwitzerland

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