An Experimental Analysis of the Prize-Probability Tradeoff in Stopping Problems

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Abstract

We experimentally examine how individuals commit to a cutoff stopping rule when facing a sequence of independent lotteries. We identify two main behavior patterns: (1) a small share of participants consistently choose stopping rules whose gain bound (i.e., the accumulated gain at which the sequence stops) is larger than the loss bound, and (2) a larger share of participants consistently choose rules whose loss bound is larger than the gain bound. We introduce a procedural choice model that accounts for these patterns and show that the behavior of most of our participants is inconsistent with prominent theories of decision under risk.
Original languageEnglish
Pages (from-to)1-45
Number of pages45
JournalReview of Economics and Statistics
DOIs
StateE-pub ahead of print - 2023

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