INSTITUTE OF MATHEMATICAL ECONOMICS

Wulf Albers

Working-Paper No. 285

January 1998

Abstract

The paper investigates the problem why the individual task to give the cash equivalent of a lottery, and the evaluation of the same lottery on a double auction market leed to completely different results. In a series of questions the motivational side of the subject is worked up in a way that the response of a cash equivalent and the evaluation of a lottery by a group of players organized via a market only differ in quantity, not in the general approach. Key is a value function which gives the incremental values of assets.
The 'countermoney effect', a framing effect that happened in the considered type of lotteries is worth mentioning. When subjects exclusively play lotteries of a type where they always get a power of ten (here 1000 DM) as payoff with different probabilities, then they analyse the payoffs with an anchor point in the given power of ten. This pattern is as similar as the use of the anchor point 100% for counterprobabilities.