Lottery pricing under time pressure
- 107 Downloads
This article investigates how subjects determine minimum selling prices for lotteries. We design an experiment where subjects have at every moment an incentive to state their minimum selling price and to adjust the price, if they believe that the price that they stated initially was not optimal. We observe frequent and sizeable price adjustments. We find that random pricing models cannot explain the observed price patterns. We show that earlier prices contain information about future price adjustments. We propose a model of Stochastic Pricing that offers an intuitive explanation for these price adjustment patterns.
KeywordsTime pressure Certainty equivalent Experiment Stochastic Becker–DeGroot–Marschak (BDM) method
Unable to display preview. Download preview PDF.
- Blavatskyy, P. R., & Köhler, W. R. (2009). Range effects and lottery pricing. Experimental Economics doi: 10.1007/s10683-009-9215-y.
- Busemeyer J. R. (1985) Decision making under uncertainty: A comparison of simple scalability, fixed sample, and sequential sampling models. Journal of Experimental Psychology 11: 538–564Google Scholar
- Busemeyer J. R. (1993) Violations of the speed-accuracy trade-off relation: Decreases in decision accuracy with increases in decision time. In: Svenson O., Maule A. J. (eds) Time Pressure and stress in human judgment and decision making. Plenum, New York, pp 181–193Google Scholar
- Wilcox N. (1994) On a lottery pricing anomaly: Time tells the tale. Journal of Risk and Uncertainty 8: 311–324Google Scholar