Theory and Decision

, Volume 70, Issue 4, pp 431–445 | Cite as

Lottery pricing under time pressure

Article

Abstract

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.

Keywords

Time pressure Certainty equivalent Experiment Stochastic Becker–DeGroot–Marschak (BDM) method 

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Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  1. 1.Institute of Public FinanceUniversity of InnsbruckInnsbruckAustria
  2. 2.EnbW Trading GmbHKarlsruheGermany

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