Multiple reference points in investor regret

Regret is the result of a comparison between “what is” and “what might have been”. Although regret is a relevant emotion in the life of investors, research studying the regrets of real investors and how these are influenced by multiple reference points is lacking. We present a field survey that investigated the regrets of real stock investors in relation to multiple “what might have been’s.” We found that their regrets are most influenced by what their outcomes might have been had they not invested, by their expected outcomes and by the best-performing unchosen stocks. In addition, we also found that the feeling of regret was influenced by losses or gains relative to each reference point rather than by the size of the loss or gain.     

SELLING TO BIASED BELIEVERS: STRATEGIES OF ONLINE LOTTERY TICKET VENDORS

We provide evidence that sellers respond to buyers' belief biases in a collective lottery betting market, by adopting sales strategies which cater to believers in the Hot Hand and Gambler's Fallacies. Lottery players on the buyer side tend to avoid buying tickets which are similar to the previous winning ticket, in accordance with the Gambler's Fallacy (Clotfelter and Cook 1993; Terrell 1994). At the same time, buyers tend to prefer purchasing tickets from previously winning sellers, despite the fully random nature of wins, in accordance with Hot‐Hand Fallacy (Croson and Sundali 2005). These behavioral biases provide an opportunity for ticket sellers to increase their expected profits by adjusting features of the lottery portfolios they sell. We find that sellers make changes to their portfolio size, commission rate, self‐purchase rate, and number choices in response to previous events, in ways that are consistent with responding to the Hot‐Hand Fallacy belief, and which also lend a degree of support for responding to the Gambler's Fallacy belief. Our results show evidence of participants in a market accommodating their choices to the biased beliefs of other participants in order to gain an advantage in expected profits. (JEL D01, D03, D81, L86)     

Why do people gamble? Further Canadian evidence

In previous studies attempts have been made to examine predictions derived from Brenner (1983) on the characteristics of lottery tickets buyers. The present study complements the previous ones: additional, more detailed data were found both on 93 winners of big lottery prizes and on various groups of buyers of lottery tickets. The image of the lottery ticket buyer that emerges from them is of a person who finding all other avenues of success closed because of one form or other of sudden adversity turns to lotteries as a recourse.This project was made possible through a grant (#410-82-0696) from the Social Sciences and Humanities Council of Canada and a grant from the Ecole des Hautes Etudes Commerciales. I thank Professor H. Roy Kaplan and Victor Tremblay who have made their Canadian data set available to me, Richard Guay and Pascal Duquette for their outstanding research assistance, and Reuven Brenner, H. Roy Kaplan, and two anonymous referees for their comments.     

A Profile of Lottery Players in Guangzhou,China

This research reports results from a survey of 1,101 lottery ticket buyers in Guangzhou, China. We found that the majority of lottery ticket buyers were young and middle-aged males with above-average-income and an education of high school/professional school or higher. Their buying behaviour usually continued for many years once they began to play. The amount of each purchase was moderate. Most reported spending less than 10% of their monthly income on the lottery each month. The majority claimed to buy lottery tickets purely for entertainment purpose while the second largest group bought lottery tickets in order to win money. The lottery business has provided more choices for meeting people's entertainment needs, and has great potential for further development. However, there were a relatively high percentage of buyers who bought lottery tickets beyond the level that was probably affordable given their income. This group should be paid special attention in order to avoid negative effects of the lottery.     

PORTFOLIO CHOICE AND RISK ATTITUDES: AN EXPERIMENT

Using financial incentives, we study how portfolio choice (how much to invest in a risky asset) depends on three well-known behavioral phenomena: ambiguity aversion, the illusion of control, and myopic loss aversion. We find evidence that these phenomena are present and test how the level of investment is affected by these motivations; at the same time, we investigate whether participants are willing to explicitly pay a small sum of money to indulge preferences for less ambiguity, more control, or more frequent feedback/opportunities to choose the investment level. First, the observed preference for "control" did not affect investment behavior and in fact disappeared when participants were asked to actually pay to gain more control. Second, while people were indeed willing to pay for less ambiguity, the level of ambiguity did not influence investment levels. Finally, participants were willing to pay to have more frequent feedback opportunities to change their portfolio, even though prior research has shown that people invest less in risky assets (and earn less) in this case . ( JEL B49, C91, D81, G11, G19)     

Lottery Playing Amongst Youth: Implications for Prevention and Social Policy

Factors associated with lottery ticket purchases, accessibility of lottery products, and lottery playing behaviour amongst 1,072 youth (ages 10-18 years old, mean age 14 years-old) was examined. Playing the lottery was found to be the most popular gambling activity with youth reporting playing all forms of lottery tickets including draws, scratch tickets, and sports lottery tickets. Youth reported beginning to play the lottery at age 12, with scratch ticket participation being amongst the most highly reported type of lottery activity with the youngest age of onset. The vast majority of youth are aware of the legal age to purchase tickets although many believed that there should be no age requirement to purchase any form of lottery ticket. Youth, regardless of their age, reported few if any difficulties in purchasing lottery tickets. Moreover, a third of underage youth reported going to the store specifically to purchase lottery tickets with this behaviour increasing with the age of the participant. This research confirms previous findings that lottery tickets are highly accessible to underage youth despite legal prohibitions. The results provide valuable information that can be subsequently used in the development of responsible social policy and youth gambling prevention programs     

Children's Cognitive Perceptions of 6/49 Lottery Tickets

Recent studies have shown the high prevalence of youth gambling behavior. In particular, lottery ticket purchases among children and adolescents appear to be a highly preferred activity. Despite this fact, most research has focused on the underlying erroneous cognitions used by adults when selecting lottery tickets. This study examines the cognitive perceptions of children while engaged in selecting 6/49 lottery tickets. One hundred sixty-seven children (61 females; 106 males) from grades 3, 5, and 7 were asked to rank pre-selected 6/49 lottery tickets which were classified into a) long series, b) specific patterns, c) non equilibrated numbers, or d) perceived random selections. Children verbalized their rationale for selecting each ticket and were permitted to change the numbers on the lottery tickets they liked least in order to make them to more likely to be the winning ticket. Findings, in general, revealed small developmental differences in the types of underlying cognitive heuristics used by the children. The use of cognitive heuristics underlying the concept of randomness and the use of significant and meaningful numbers was observed to increase as children got older. Children between 9 and 11 were found to have employed the cluster heuristic more frequently than older children, ages 12–13. The results are interpreted in terms of the cognitive developmental changes in children's perceptions and the potential implication for gambling prevention programs are provided.     

An investigation of the endowment effect in the context of a college housing lottery

The endowment effect was examined in a two-part study in the context of a college housing lottery. Students who were awarded their first choice of residence hall were asked the lowest dollar amount they would be willing to accept (WTA) to give up their first choice hall whereas students who were denied their first choice were asked the highest dollar amount they would be willing to pay (WTP) to obtain their first choice. Results from the initial assessment showed the presence of the endowment effect regarding students’ valuation of their first choice residence hall immediately after the housing lottery (i.e., WTA price was significantly higher than WTP price). The follow-up surveyed participants from the initial assessment who responded when contacted a second time after they had experienced two months of life in the residence hall they were awarded in the lottery. Results from the follow-up showed that the endowment effect was still present after experiencing life in the residence hall. Moreover, further analyses revealed that the endowment effect was, in fact, enhanced after the living experience. These findings demonstrate that within the context of a housing lottery, a highly-valued commodity, long-term experiences substantially increase the magnitude of the endowment effect, even when controlling for other factors that have been shown to impact this effect.     

Wer spielt, hat schon verloren?

How actors decide to value goods is a central research question in economic sociology. The demand for lottery tickets is of particular interest because it poses a specific paradox: the expected monetary value of a ticket is about half of its purchasing price. The demand for lottery tickets thus seems to be economically irrational. Nevertheless, millions of people buy national lottery tickets every week. How can there be such a large demand in this market? On the basis of representative sruvey data, we test empirical findings using four different theoretical approaches explaining the demand for lottery tickets. We show that socially mediated states of tension and network influences are strong explanatory factors. In the conclusion we discuss implications for the sociology of markets.     

Lottery Ticket Preferences as Indicated by the Variation in the Number of Winners

Many gamblers believe that it is possible to find a strategy to beat the lottery including selecting numbers that are due to come up or looking for a bias in past numbers. In this paper, we examine sales figures and variations in the number of winners for the various prize levels of a popular Canadian lottery to detect lottery ticket preferences. It was determined that the lottery outcomes conformed well to a random outcome. No evidence of either a bias myth or due to come up myth was found. However ticket popularity indicated a marked preference for the number 7 and low numbers, and the avoidance of high numbers and adjacent numbers. In addition we found a linear and a quadratic relationship between past frequency of the numbers and ticket popularity indicating a belief in both the due to come up and the bias myths. The findings suggest strong non-random preferences in the selection of lottery numbers.     

A reverse sunk cost effect in risky decision making: Sometimes we have too much invested to gamble

The sunk cost effect refers to the empirical finding that people tend to let their decisions be influenced by costs made at an earlier time in such a way that they are more risk seeking than they would be had they not made these costs. This finding seems to be in conflict with economic theory which implies that only incremental costs and benefits should affect decisions. The effect is often explained in terms of prospect theory of (Kahneman, D., Tversky, A., 1979. Prospect theory: An analysis of decision under risk. Econometrica 47, 263–291), suggesting that sunk costs may induce a ‘loss frame,’ consequently causing risk seeking behavior. We argue that sunk costs may also result in risk aversion. In the present study we investigated the effect of time and effort investments (Behavioral Sunk Costs) on risky decision making in gain and loss situations. The results show that, in agreement with prospect theory, participants were more risk averse in gain situations than in loss situations. Moreover, incurring Behavioral Sunk Costs appeared to increase risk aversive choices, i.e., a reverse sunk cost effect. Furthermore, the results suggest that, in loss situations, Behavioral Sunk Costs mainly lead to risk aversive behavior if opting for the ‘safe’ alternative is not accompanied by an increased possibility to regret the decision.     

Lottery Promotions at the Point-of-Sale in Ontario, Canada

We documented the extent of point-of-sale (POS) lottery promotions in Ontario, Canada and the relationship between lottery promotions and store and city characteristics. This is the first quantitative study of POS lottery promotions. A total of 366 stores—independent and chain convenience stores, gas stations and grocery stores—were visited across 20 cities in Ontario. Data collectors unobtrusively observed the type of lottery promotions in each store and completed a data collection checklist. A lottery promotion index was created and hierarchical linear modeling (HLM) was conducted to examine the relationship between extent of lottery promotions and independent variables such as neighbourhood socioeconomic status and city prevalence of lottery ticket purchasing. POS lottery promotions were widespread across Ontario, with the highest level of promotion found in independent convenience stores. In the multivariable HLM model, none of the remaining independent variables remained statistically significant, except for store type. Lottery promotions are extensive at the POS in Ontario. These findings can help initiate discussions around the appropriateness and possible future regulation of this form of advertising.     

Thirty Years of Lottery Public Health Research: Methodological Strategies and Trends

Cognitive measurement techniques, such as self-reports of behavior and reaction time measures, largely dominate the field of psychological research. It is uncommon for researchers to examine a phenomenon of interest by observing actual behavior within natural settings. To illustrate the existence of this methodological trend for gambling research, this article reviews systematically selected samples of the peer-reviewed literature related to lottery gambling in general and the literature related to pathological gambling and lottery more specifically. The results indicate that self-report surveys dominate the extant lottery literature, and experimental investigations of video lottery terminal gambling supplement those papers. This landscape encourages researchers to expand their methodological approaches to the study of lottery gambling. Currently, we know more about what research participants tell us they do with respect to lottery gambling than we do about their real-life lottery gambling behavior.     

Lottery Gambling: A Review

This paper presents an exhaustive review of the literature on lottery gambling involving numbers games, lotto, and scratch cards. Results provide tentative answers to the question why people buy lotteries, and support the theory of judgment under uncertainty, cognitive theory of gambling, and theory of demand for gambles. Results also indicate some potential addictiveness of this form of gambling. Youths buy different forms of lotteries and the best predictor of their lottery purchases is their parents’ lottery participation. Contrary to the myth that a big lottery win will ruin the winners’ lives, lottery winners tend to be well-adjusted and their life quality seems to improve. Suggestions for future research are discussed.     

What drives lottery demand? Evidence from China's lottery practice

As governments draw increasing revenues from the lottery industry, it has become academically important, as well as for policy purposes, to better understand the factors that can explain lottery purchase decisions. The traditional literature uses either the expected return of each lottery ticket (effective price approach) or the jackpot size (jackpot approach) to explain the variation in lottery demand. In this article, we examine these two factors by exploiting a unique lottery game set-up in lottery practice in China. This lottery game is similar to lotteries in other countries except that there is a cap policy on the grand prize, which limits the reward of each jackpot winner. We show that this complex cap policy actually causes both the lottery effective price and the jackpot size to remain almost fixed for the majority of the time while lottery demand significantly fluctuates. The lack of variation suggests that, in China's practice, neither the effective price nor the jackpot size can explain the observed variation in lottery sales. Instead, we find that the size of the lottery rollover fits well in explaining the variation in lottery demand.     

New Price,New Hope? An Examination of the Effects of Doubling the Ticket Price in UK Lotto

The UK Lotto game was introduced in November 1994 with a standard 6/49 format and an entry fee of £1 per ticket. After several years, revenue began to fall despite extensive publicity and a variety of inducements. By 2013, nominal weekly revenue was less than half the 1995 level. In October 2013, the operator doubled the price of a ticket to £2 and made a number of changes to the pay-out structure of smaller prizes. The intent of the changes was to reverse the long downward trend in game revenue by encouraging higher jackpots and offering more pay-out opportunities for each ticket. We use draw by draw revenue and other data to evaluate how players responded to these changes and find that, while ticket sales fell dramatically, total revenue rose following the changes. Primarily this appears to have been the consequence of increased frequency of rollovers (and therefore of more frequent high jackpot draws) rather than ticket price inelasticity. However, although there was a short-term gain in revenue, the changes did not arrest, and indeed seem to have accentuated, the long-run trend decrease in the revenue generated by the game.     

Bad luck vs. self-inflicted neediness – An experimental investigation of gift giving in a solidarity game

We experimentally examine the impact of self-inflicted neediness on the solidarity behavior of subjects. In one treatment in our solidarity experiment all subjects face the same probability of becoming needy, in the other treatment subjects have the choice between a secure payment and a lottery which includes a certain probability of becoming needy. Then all subjects are asked how much they will give to losers in their group to investigate if people are willing to give the same gifts whether or not subjects are responsible for inequality in payoffs. We found evidence for allocative as well as for procedural utility concerns.     

Not all luck is created equal: Sources of income inequality and willingness to redistribute

Despite steadily rising inequality in the US over the last few decades, demand for increasing tax rates and redistribution has not increased. A growing literature argues that one reason for this is that people might perceive inequality to be fair. This literature has documented that Americans tend to perceive economic inequality stemming from merit as being fair and inequality stemming from luck as unfair. However, “lucky breaks” in the real world do not necessarily come from a lottery or random chance but from the actions of the government favoring a “lucky” few. People might be more willing to redistribute if it compensates those negatively affected by government action. Using an online experiment we show that luck stemming from the action of a government-like actor influences individuals’ desire to redistribute earnings making them more likely to favor redistribution than in instances where inequality is caused by merit or by random luck.     

Lottery participation by youth with gambling problems: are lottery tickets a gateway to other gambling venues?

The aim of the present study was to investigate the types of gambling activities youths with gambling problems participate in and whether the lottery is a key gambling venue for these young people. Secondly, we sought to ascertain whether youths with gambling problems display similar gambling behaviour with lottery tickets as those addicted to traditional forms of gambling. Participants were 1,072 young people, 10-18 years of age, in Ontario, Canada. Youths with gambling problems reported having a preference for lottery tickets compared to other forms of gambling. Differences were found for the frequency with which probable pathological gamblers reported going to the store specifically to purchase lottery tickets. Furthermore, probable pathological gamblers reported chasing their losses after having played the lottery more than the other gambling groups. This research demonstrates that youths with gambling problems gamble primarily with lottery products and exhibit similar pathological gambling behaviour (e.g., chasing) as those individuals addicted to other forms of gambling venues. Furthermore, the results suggest that lottery tickets are a potentially addictive activity that introduces youth to the exciting properties of gambling.     

Overcoming disabling barriers: disability and attitudes to disability within the Maltese context: an insider’s perspective

This article explores the way a number of disabled people and a parent of a disabled child living in Malta, a small island in the Mediterranean, look at their daily experiences of disability and talk about what changes they would like to see in Maltese society for them to feel more equal and included. While participants acknowledge that much progress has been made in terms of inclusion, they still feel that there are still disabling attitudes that are posing limits to their choices. Lacking a true disabled people’s movement, disabled people express the need for more unity within the disabled community. Even if the article offers hope for the development of a grassroots disabled people’s movement, this possibility remains inconclusive – but the report does offer hope for future action.