2023 - Working Papers: Managerial Economics
An experimental analysis of the prize-probability tradeoff in stopping problems, 56 pp.
Y. Antler and A. Arad
(Working Paper No. 8/2023)
Research No.: 00180100
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 decision-making 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.