Instructions for Judged Value of Lotteries
In this study you are asked to judge how much you would bid to play various lotteries. The lotteries differ in their prizes and in the probability that you win the larger prize. The prizes vary from $100 cash, to gift certificates to Barnes and Noble. The probability to win is indicated by a percentage, which gives your chances to win the larger prize. Probabilities range from 1% chance to win to 100% (a sure thing). Otherwise, you win the smaller prize, which can be as low as $0 (nothing) in some of the lotteries. Imagine that you are bidding against 100 other people. This is a "second price" auction, which means that the highest bidder wins the chance to buy the lottery but only has to pay as much as the second highest bid. Economists say that your best strategy is to honestly state the highest amount you would be willing to pay to buy the lottery.
Here are some warmup questions:
Now, please reread the above instructions, and answer the following questions.