Loving the Long Shot: Risk Taking with Skewed Lotteries

We develop a new protocol, adapted from the Eckel and Grossman (2002, 2008) risk measure, to elicit skewness preferences. The new lottery choices have the same expected payoffs and risk (variance) as the original choices, but with increasing degrees of positive skewness. We find that our subjects are skewness-seekers. More importantly, positive skewness in the payoff structure increases the number of subjects willing to gamble as well as increasing subjects’ risk taking in lottery choices. We conclude that skewed, long-shot payoffs entice decision makers to higher levels of risk taking than they otherwise would prefer.