An Experimental Analysis of the Prize-Probability Tradeoff in Stopping Problems

Abstract

Abstract 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 choice 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.