Wagering on more than one outcome in an event in Cumulative Prospect Theory and Rank Dependent Utility

Peel, David Alan (2017) Wagering on more than one outcome in an event in Cumulative Prospect Theory and Rank Dependent Utility. Economics Letters, 154. pp. 45-47. ISSN 0165-1765

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Abstract

In this letter we illustrate a previously unrecognised implication of Cumulative Prospect Theory and Rank Dependent Utility. We demonstrate that the representative individual in both models will often engage in wagering on more than one outcome in an event. For instance when playing European roulette the representative agents in CPT or RDU will always optimally wager on more than one outcome. This implication contrasts with expected utility models of wagering based on risk-seeking preferences due to the assumption of a convex segment of the utility function.

Item Type:
Journal Article
Journal or Publication Title:
Economics Letters
Additional Information:
This is the author’s version of a work that was accepted for publication in Economics Letters. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economics Letters, 154, 2017 DOI: 10.1016/j.econlet.2017.02.005
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
84632
Deposited By:
Deposited On:
08 Feb 2017 11:52
Refereed?:
Yes
Published?:
Published
Last Modified:
25 Oct 2020 04:39