Center for Advanced Management

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Prof. Thomas Astebro (HEC Paris)


  • Datum: 04.06.09
    09:00 - 10:30
    Raum 202, Kaulbachstr. 45 / 2.OG

Preference for Skew and Entry into Entrepreneurship

This paper uses a laboratory experiment to investigate how the skew of a payoff distribution influences choices under risk. We find a statistically significant preference for positive skew under low and high stakes. We find that rank-dependent utility (RDU) combined with hyperbolic absolute risk aversion (HARA) explains subjects' lottery choices better than expected utility theory (EUT) and better than RDU combined with power or expo-power utility functions. We discuss the economic implications of our findings for gambling in state lotteries, entrepreneurship, and inventive activity. We argue through calibrations that RDU combined with HARA is able to explain (i) why people buy public lottery tickets, and (ii) why most individuals buy only one or a few tickets. We show that RDU combined with HARA can also explain entrepreneurship and inventive activity. In contrast, EUT and prospect theory are not able to explain these choices.