The price of success


How much should you pay for a better chance at success? For this project, we approached individuals in a city park and had them play a novel lottery using a small set of black and white marbles in an urn. They drew – just once – from the urn, and they won a cash prize if the draw was white. The number of black marbles in the urn was fixed but initially there were no white marbles. Before drawing, subjects could add as many white balls as they liked, paying a fixed cost for each. If they bought none, they lost; if they bought too many, their costs outweighed their possible winnings. We find that subjects consistently bought slightly more white marbles than was optimal, a form of risk aversion.