Lottery pricing under time pressure

Lottery pricing under time pressure

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Article ID: iaor20112357
Volume: 70
Issue: 4
Start Page Number: 431
End Page Number: 445
Publication Date: Apr 2011
Journal: Theory and Decision
Authors: ,
Keywords: pricing, lotteries
Abstract:

This article investigates how subjects determine minimum selling prices for lotteries. We design an experiment where subjects have at every moment an incentive to state their minimum selling price and to adjust the price, if they believe that the price that they stated initially was not optimal. We observe frequent and sizeable price adjustments. We find that random pricing models cannot explain the observed price patterns. We show that earlier prices contain information about future price adjustments. We propose a model of Stochastic Pricing that offers an intuitive explanation for these price adjustment patterns.

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