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Title:The utility of gambling reconsidered
Authors:Diecidue, Enrico
Schmidt, Ulrich
Wakker, Peter P.
Issue Date:2004
Citation:[Volume:] 29 [Issue:] 3 [Pages:] 241-259 [Journal:] Journal of risk and uncertainty : JRU [ISBN:] 0895-5646
Abstract:The utility of gambling, which entails an intrinsic utility or disutility of risk, has been alluded to in the economics literature for over a century. This paper demonstrates that any utility of gambling almost unavoidably implies a violation of fundamental rationality properties, such as transitivity or stochastic dominance, for static choices between gambles. This result may explain why the utility of gambling, a phenomenon so widely discussed, has never been formalized in the economics literature. The model of this paper accommodates well-known deviations from expected utility, such as the Allais paradox and the coexistence of gambling and insurance, while minimally deviating from expected utility.
Subjects:certainty effect
utility of gambling
risk aversion
nonexpected utility
Persistent Identifier of the first edition:doi:10.1023/B:RISK.0000046145.25793.37
Document Type:Article
Appears in Collections:Economists Online

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