Loving the long shot: Risk taking with skewed lotteries

We develop a new protocol to elicit preferences over gambles that contain large, asymmetric, low-probability outcomes. Subjects first select their preferred choice from a set of zero-skewness gambles, providing a measure of their preferences for risk as standard deviation. The new lottery choices have the same expected payoffs and standard deviation as the original set of choices, but with positive skewness. We find that subjects are skewness-seekers and more importantly, positive skewness in the payoff structure increases the riskiness of subjects preferred lottery choices. We conclude that skewed, long-shot payoffs entice decision makers to higher levels of risk taking.