The influence of time delay in sequential lotteries

Abstract

The dissertation draws from the area of experimental economics. A specific experiment was designed to analyse and investigate the behavior of individuals under sequential games. In order to carry out the designed experiment an online questionnaire was set up. To encourage participation the link to the online questionnaire was sent to a network of participants who were then invited to pass on the link through their own networks. Hence, the multiplier concept was used to recruit people. The designed questionnaire presented participants with the opportunity to choose one lottery, from among 2 lotteries, which had different winnings and different winning probabilities. However, both lotteries had the same expected value of €8. Lottery A was the low emotion, low risk lottery while lottery B was the high risk, high emotion lottery. It is important to note that the outcome of the lottery would be known to the participants under different time states being, immediate, 2 weeks later, 3 months later, 6 months later and 1 year after the participant decided which lottery to play. The designed questionnaire also incorporated a qualitative element which was used to further enforce the quantitative results obtained. The main difference in the designed experiment was that the game being played was sequential and not a one-shot game. The main result of the experiment was that as the outcome of the lotteries was postponed from the immediate condition to a delay period of 1 year more respondents shifted their choice from lottery A to lottery B. The result contradicts our a priori expectations based on the insights provided by the Discounted Utility model and the Expected Utility model. The qualitative element in the questionnaire also confirmed that one of the reasons why respondents shifted from lottery A to lottery B as the outcome was postponed was due to savouring. With regards to the student sample it was observed that when the outcome ot the lotteries was delayed to 1 year, the participants behaved as if they were in the immediate condition, that is part of the respondents shifted their choice back from lottery B to lottery A.