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Does luck make people more optimistic and patient? - Lessons from an experiment with students and rural subjects in Malawi

Author

Listed:
  • Holden, Stein T.

    (Centre for Land Tenure Studies, Norwegian University of Life Sciences)

  • Tione, Sarah Ephrida

    (Centre for Land Tenure Studies, Norwegian University of Life Sciences)

  • Tilahun, Mesfin

    (Centre for Land Tenure Studies, Norwegian University of Life Sciences)

  • Katengeza, Samson

    (Centre for Land Tenure Studies, Norwegian University of Life Sciences)

Abstract

We investigate how random luck in repeated variants of the risky investment game of Gneezy, Leonard, and List (2009); Gneezy and Potters (1997) influences risk-taking and discounting behavior in future risky prospects with probabilistic payouts one week, six, 12, and 24 months into the future. We test non-parametrically whether luck enhances risk-taking and patience (reduces the discount rate) in risky prospects with delayed payouts. To investigate whether luck influences probability weighting (w(p) function), we estimate structural models with two-parameter Prelec probability weighting functions to decompose risk-taking in prospects with potential payouts six and 12 months into the future. We find that luck results in more optimistic (reduces the Prelec β parameter) and less non-linear (inverse-S-shaped) (increases the Prelec α parameter) w(p) function. We assess this for two samples from Malawi: one is a random sample of university students (n=721), and the other is a random sample (n=835) of rural subjects with limited education. The students were found to be more patient but had similar probability weighting functions.

Suggested Citation

  • Holden, Stein T. & Tione, Sarah Ephrida & Tilahun, Mesfin & Katengeza, Samson, 2024. "Does luck make people more optimistic and patient? - Lessons from an experiment with students and rural subjects in Malawi," CLTS Working Papers 4/24, Norwegian University of Life Sciences, Centre for Land Tenure Studies.
    • Handle: RePEc:hhs:nlsclt:2024_004
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    More about this item

    Keywords

    Luck; Discounting; Risk-taking; Probability weighting;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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