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State lottery in the lab: an experiment in external validity

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Abstract

In this study, we conduct a laboratory experiment in which the subjects make choices between real-world lottery tickets typically purchased by lottery customers. In this way, we can reliably offer extremely high potential payoffs, something rarely possible in economic experiments. In a between-subject design, we separately manipulate several features that distinguish the situation faced by the customers in the field and by subjects in typical laboratory experiments. We also have the unique opportunity to compare our data to actual sales data provided by the operator of the lottery. We find the distributions to be highly similar (meaning high external validity for this particular setting). The only manipulation that makes a major difference is that when the probabilities of winning specific amounts are explicitly provided (which is not the case in the field), choices shift towards options with lower maximum possible payoff and lower payoff variance. We also find that subjects generally show preference for long shots and that standard laboratory measures of risk posture fail to explain their behavior in the main task.

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Notes

  1. Indeed, surprisingly few authors have used real-world lottery tickets in the lab to explore risk preference. A valued early exception is a paper by Bohm and Lind (1993) documenting that preference reversals are less common in real-world lotteries. An important recent example is Chark (Chark et al. 2020) who use Chinese state lottery tickets. The experiment was run online, with only a small fraction of subjects receiving choice-dependent payments up to 3 months after taking the experiment. They observe a peculiar combination of long-shot preference for low expected payoffs and long-shot aversion for high expected payoffs.

  2. To ensure that the subjects believed our assurances, we ran an online pilot; 48 participants were asked to imagine they had participated in an experiment in our lab, in which extremely high payoffs were possible (albeit with low probabilities) and to answer on a scale from 1 to 10 to what extent they would trust the experimenter and the instructions. 71% chose 9 or 10. The distribution was virtually identical in the control group in which the description was analogous, but we did not mention that the payoffs could be very high.

  3. The specific wording was as follows: „remember that during experiments at the [faculty and university name] we never mislead participants nor lie. The payouts we offer here are secured and actually possible to receive. If you have any doubts about how we can guarantee such high payouts, ask the experimenter, for example when returning the form.”

  4. Some variables, for example education and income, are measured on an ordinal scale, so including them directly is only correct under the assumption that each change to a higher level has the same effect upon the left-hand variable. Still, it provides a simplified view of their impact; representing any of them as a set of dummy variables leads to analogous conclusions concerning their significance and the direction of their influence.

  5. Of course, the question arises of why subjects did not tend to report higher WTP when the probabilities were provided (turning out to be higher than most people had thought). This could be understood in terms of mild ambiguity seeking (in our domain of low probabilities and high payoffs).

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Acknowledgements

Helpful comments made by the participants of the 2020 WIEM Conference at the University of Warsaw, Poland and the 2020 SABE Annual Conference at the HSE University, Moscow, the Russian Federation are gratefully acknowledged. This project was supported by the National Science Centre of Poland, grant 2016/21/B/HS4/00688.

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  1. Faculty of Economic Sciences, University of Warsaw, Warsaw, Poland

    Raman Kachurka, Michał Krawczyk & Joanna Rachubik

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  1. Raman Kachurka
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Correspondence to Michał Krawczyk.

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Kachurka, R., Krawczyk, M. & Rachubik, J. State lottery in the lab: an experiment in external validity. Exp Econ 24, 1242–1266 (2021). https://doi.org/10.1007/s10683-020-09696-2

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  • DOI: https://doi.org/10.1007/s10683-020-09696-2

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