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Loving the Longshot: Risk Taking with Skewed Gambles
Economics Seminar Series
  • Philip Grossman, Monash University
  • Catherine Eckel, University of Texas at Dallas
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To examine the effect of increased skewness on risk taking, we conduct controlled laboratory experiments. Our instrument is an adaption of the Eckel and Grossman (2002, 2008) risk measure (with six gamble choices). The Eckel and Grossman measure is a simplest, easy to understand, exercise that gives sufficient heterogeneity in choices while at the same time minimizing errors. Its simplicity also makes it easy to adapt. The adapted gamble choices are designed to have the same expected payoffs and risk as the original gamble choices, but to exhibit increasing degrees of right skewness. The adapted instrument is used to address the question; does skewness encourage greater or less risk taking? Does the possibility of winning a high-earnings, long shot encourage people into greater or less overall risk taking? It also permits us to confirm, in a controlled environment, that people prefer positive skewness?

This work was supported by a SCSU Faculty Research Grant. We thank Thomas Sires and Sheheryar Banori for their programming and statistical help.

Citation Information
Philip Grossman and Catherine Eckel. "Loving the Longshot: Risk Taking with Skewed Gambles" (2009)
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