Risk Attitude in Choosing Between Lottery And Auction In License Plate Regulations

TitleRisk Attitude in Choosing Between Lottery And Auction In License Plate Regulations
Publication TypeUnpublished
Year of Publication2017
AuthorsShenhao Wang, Jinhua Zhao
Series TitleWorking paper

Risk attitude influences how people make choices when choices are uncertain. In China, local governments use lottery, auction, or a mix of the two to allocate license plates to mitigate automobile growth. While past studies have mainly focused on normative assessment, this study explores what determines public choices among non-participation, lottery, and auction, with a specific focus on the influence of risk attitude. We implemented a questionnaire survey in January 2016 using a stratified sampling scheme. By comparing three logit models that simulate the policy conditions in Guangzhou, Shanghai, and Beijing, this study yields two major findings. First, people tend to overestimate the low probabilities of winning the lottery and underestimate the high probabilities of winning the auction. Second, risk attitude influences public choices. When choosing between non-participation and lottery, or non-participation and auction, risk-seeking people are more optimistic and more likely to choose the lottery and the auction. This study measures risk attitudes by perceived uncertainty, fit it into the framework of choice models, and ground it in a specific policy context. Policy makers need to be aware of risk attitude and bias created by this factor, and understand how it changes behavior, and potentially leverage it to achieve ideal policy outcomes.