Similarity and preferences in the space of simple lotteries

A. Rubinstein's similarity-relation approach to decision making under uncertainty is extended by introducing a new concept of correlated similarity relations. It is shown that every expected utility preference is consistent with the -difference similarity relation on the prize space and some correlated similarity relations on the probability space, and that a similarity relation on the prize space and correlated similarity relations on the probability space overdetermine the preference (in A. Rubinstein's sense).Earlier versions were presented at the Edwin Smart Symposium on Games and Economic Behavior, Ohio State University, 1989, the ESEM 1989 Meeting, the EEA 1989 Meeting, the Workshop on Rational and Boundedly Rational Principles of Strategic Behavior, Universität Bielefeld, 1989, and the ASSET 1991 Meeting. We wish to thank the comments received from the participants in those meetings and the stimulating suggestions of S. Ch. Kolm, R. D. Luce, and an anonymous referee. Financial support from the Universidad del Pais Vasco-Euskal Herriko Unibertsitatea, DGCYT (PS 87-0039) and Gobierno de Navarra are gratefully acknowledged.     

The impact of risk sharing on efficient decision

A group of risk-averse members must choose among monetary risks and payoff-sharing rules. Departure from the status quo requires unanimous consent. Such groups drill for oil, bail out nations, and make hostile takeover bids. Assume agreement on probabilities. As is well known, if all members have identically shaped HARA utility functions, efficient group act-choices follow another such function independently of payoff sharing. We show that all other groups inevitably have complex efficient behavior, accepting gambles among individually unacceptable lotteries in almost every status quo position. We also develop proper risk aversion for groups, and treat disagreement on probabilities.Support of the Associates of the Harvard Business School (Pratt) and the Business and Government and Energy and Environmental Policy Centers (Zeckhauser) is gratefully acknowledged. We received helpful comments from Scott Johnson, Mark Machina, and a referee. Jay Patel provided assistance beyond the call of collegiality.     

Psychometric Validation of the Gambling Passion Scale (GPS) in an English-speaking University Sample

The Gambling Passion Scale (GPS) is a recently developed research instrument for assessing individuals' passion for gambling. Because the psychometric properties of the GPS have only previously been examined in French Canadians, the aim of this study was to replicate previous psychometric findings in an English-speaking university sample. Participants (female: n = 58; male: n = 89) were drawn from a university campus based on self-reported experience with gambling indexed by scores on the South Oaks Gambling Screen (SOGS). The two-factor structure reported by Rousseau et al. (Journal of Gambling Studies, 18(1), pp. 45–66, 2002) was largely replicated in this sample, as were relationships between ‘obsessive passion’ and negative consequences stemming from gambling. These results support the validity of the GPS as a measure of gambling passion in English-speaking university gamblers and its potential to contribute to understanding problem gambling.     

Lottery Decisions and Probability Weighting Function

This article analyzes the implications of basic lottery tests for the probability weighting function w(p). We first show that the w(p) function with one argument cannot accommodate three basic tests of lottery choice. We also discuss in detail the links between the w(p) function with one argument and the preference reversal paradox. In the last section we propose an evaluation function that accommodates the restrictions imposed by the tests and we provide an example of such function.     

Ellsberg Revisited: An Experimental Study

An extension to Ellsberg's experiment demonstrates that attitudes to ambiguity and compound objective lotteries are tightly associated. The sample is decomposed into three main groups: subjective expected utility subjects, who reduce compound objective lotteries and are ambiguity neutral, and two groups that exhibit different forms of association between preferences over compound lotteries and ambiguity, corresponding to alternative theoretical models that account for ambiguity averse or seeking behavior.     

Who plays? Who pays?: education finance policy that supplants tax burdens along lines of race and class

Many Chicagoans are getting shortchanged, particularly when it comes to money exchange between the Illinois Lottery (IL) and Illinois State Board of Education (ISBE). A significant portion of lottery sales is earmarked for education in Illinois. Because these revenues are not generated equally, however, some contribute more to education via the lottery than others. When this money is distributed in a way that transfers it from one community to another, one community’s fiscal gain comes at another’s expense. So the question stands: Who plays and who pays? To answer this question, I use the city of Chicago as a case study to simultaneously compare the generation and appropriation of lottery revenues. What I found was that this exchange is inherently organized along lines of race and class. Lottery revenues disproportionately come from communities comprised predominantly by people of color and the working class, and then are redistributed across all communities through education finance. When fiscal policy of Illinois public education is structured in such a way, it inequitably distributes economic capital and preserves undeserved enrichment and unjust impoverishment. This represents a state-sponsored process that captures one mechanism for the reproduction of race and class inequality.     

Lottery Games and Risky Technologies: Communications About Low-Probability/High-Consequence Events

There are strong structural similarities between risks from technological hazards and big-purse state lottery games. Risks from technological hazards are often described as low-probability, high-consequence negative events. State lotteries could be equally well characterized as low-probability, high-consequence positive events. Typical communications about state lotteries provide a virtual strategic textbook for opponents of risky technologies. The same techniques can be used to sell lottery tickets or "sell" opposition to risky technologies. Eight basic principles are enumerated.     

Personality and psychographics of three types of gamblers in the United States

Using the results of the Experian Marketing Services' Simmons^® National Consumer Study (NCS) (N₀ = 24,581), this paper studies the characteristics of three types of US. gamblers: regular lottery players (N₁ = 1100), heavy casino gamblers (N₂ = 636) and online gamblers (N₃ = 291). We explore each type of gambler using measures of several personality and psychographic variables: impulsiveness, desire for control, materialism, risk taking, self-centredness, introversion, sensation seeking and financial prudence. We find that while all three groups have elevated levels of impulsiveness and materialism relative to non-gamblers (p < 0.01), most noteworthy are the online gamblers, who have higher levels of risk taking, desire for control, self-centredness and sensation seeking compared to casino gamblers, lottery players and non-gamblers (p < 0.01). This study additionally emphasizes the importance of considering demographics when investigating psychographics, as some of the psychographics related to gambling are conditioned on age. In addition, we find that online gamblers who also engage in other forms of gambling may be distinct from those who do not, suggesting they are not a homogeneous group.     

Preferences for One‐Shot Resolution of Uncertainty and Allais‐Type Behavior

Experimental evidence suggests that individuals are more risk averse when they perceive risk that is gradually resolved over time. We address these findings by studying a decision maker who has recursive, nonexpected utility preferences over compound lotteries. The decision maker has preferences for one‐shot resolution of uncertainty if he always prefers any compound lottery to be resolved in a single stage. We establish an equivalence between dynamic preferences for one‐shot resolution of uncertainty and static preferences that are identified with commonly observed behavior in Allais‐type experiments. The implications of this equivalence on preferences over information systems are examined. We define the gradual resolution premium and demonstrate its magnifying effect when combined with the usual risk premium.     

Myopic risk-seeking: The impact of narrow decision bracketing on lottery play

In two experiments conducted with low-income participants, we find that individuals are more likely to buy state lottery tickets when they make several purchase decisions one-at-a-time, i.e. myopically, than when they make one decision about how many tickets to purchase. These results extend earlier findings showing that “broad bracketing” of decisions encourages behavior consistent with expected value maximization. Additionally, the results suggest that the combination of myopic decision making and the “peanuts effect”—greater risk seeking for low stakes than high stakes gambles—can help explain the popularity of state lotteries.